Refer to the information provided in Figure 10.2 below to answer the questions that follow. Figure 10.2
-Refer to Figure 10.2. Suppose money demand is currently at Point A. An increase money demand could be caused by
A) an increase in the interest rate.
B) an increase in nominal income.
C) a decrease in the interest rate.
D) a decrease in nominal income.

Question

Refer to the information provided in Figure 10.2 below to answer the questions that follow.  Figure 10.2
-Refer to Figure 10.2. Suppose money demand is currently at Point A. An increase money demand could be caused by
A) an increase in the interest rate. 
B) an increase in nominal income. 
C) a decrease in the interest rate. 
D) a decrease in nominal income.

Quizplus · Accepted Answer

According to the graph, an increase in nominal income (shift in MD to the right) would cause an increase in money demand without affecting the interest rate. A decrease in interest rate would shift the MD curve to the right (increase in money demand) but that would not be caused by an increase in money demand. Similarly, a decrease in nominal income would shift the MD curve to the left (decrease in money demand) but that would not be caused by an increase in money demand.

Refer to the Information Provided in Figure 10