Chapter 28, Problem 5MCQ

To determine

When the quantity of money demanded rise?

Explanation of Solution

The entire demand for cash in the economy is referred to as the money demand. The relationship between the interest rate and the demand for money is inverse.

The link between the quantity of money demanded and the economy's interest rates are represented by the money demand curve.

The entire number of products or services that customers have wanted over a period of time is referred to as the quantity demanded. The cost of the products or services on the market determines whether the market is in balance. The term "demand curve" or "demand" refers to the connection between the quantity desired and the price. The elasticity of demand occurs when the amount sought varies in relation to price.

Take Anna as an example, who resides and works in New York City. What would happen to Anna's need for money if interest rates rise from 5% to 8%? It will cost Anna extra to retain cash if interest rates increase from 5% to 8% for her. As a result, Anna's cash demand curve shifts, making her wish to keep less cash.

The quantity of money increases when short-term interest rates decline, then, is the answer.

decreasing interest rates.

Hence, the correct option is E.

Economics Concept Introduction

Introduction:

Changes in interest rates are often confused with changes in the money demand curve. The truth is that changes in interest rates produce movements along the money demand curve, not shifts. The only change in external factors other than interest rates results in a shift in the money demand curve.