Question

An increase in money demand will cause which of the following?

OA decrease in the nominal interest rate
O A increase in the nominal interest rate
OA decrease in the money supply
An increase in the natural rate of unemployment

Answer 1

An increase in money demand will cause a decrease in the money supply and potentially the nominal interest rate.

Step-by-step explanation:

An increase in money demand will cause a decrease in the money supply. When there is an increase in money demand, individuals and businesses want to hold more money, which can lead to a shortage of money in the economy. In response, the central bank may decrease the money supply to meet the increased demand, which can result in a decrease in the nominal interest rate as well.

Learn more about Money demand and its impact on the money supply and nominal interest rate