Question

Which of the following would lead to an increase in nominal interest rates?

A An expansionary monetary policy accompanied by an increase in the demand for money
B An expansionary monetary policy accompanied by a decrease in the demand for money
C An expansionary monetary policy conducted without any change in the demand for money
D A contractionary monetary policy accompanied by an increase in the demand for money E A contractionary monetary policy accompanied by a decrease in the demand for money

Answer 1

An increase in nominal interest rates is likely to occur when there is a contractionary monetary policy accompanied by a decrease in the demand for money.

Step-by-step explanation:

An increase in nominal interest rates is likely to occur when there is a contractionary monetary policy accompanied by a decrease in the demand for money. In contractionary monetary policy, the central bank reduces the supply of money and credit in the economy, which leads to a higher interest rate. The decrease in the demand for money further contributes to the increase in nominal interest rates.