Sia
Question
Statistics
Posted 10 months ago
Which of the following would cause an unambiguous decrease in nominal interest rates?
Choose 1 answer:
(A) Aggregate demand increases
(B) People are able to access money more easily
(c) Households sell bonds
(D) A decrease in the monetary base
(E) An increase in the price level
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Answer from Sia
Posted 10 months ago
Solution by Steps
step 1
To determine the effect on nominal interest rates, we must understand the relationship between the supply and demand for money
step 2
An increase in aggregate demand (A) typically leads to higher prices and potentially higher interest rates, not a decrease
step 3
If people can access money more easily (B), this implies an increase in the money supply, which can lead to lower nominal interest rates
step 4
Households selling bonds (C) would increase the supply of bonds and decrease their price, leading to higher interest rates
step 5
A decrease in the monetary base (D) would lead to a decrease in the money supply, which would typically increase interest rates
step 6
An increase in the price level (E) is associated with inflation, which often leads to higher nominal interest rates
step 7
The only option that unambiguously leads to a decrease in nominal interest rates is when the money supply increases, making money more accessible (B)
Answer
B
Key Concept
Money Supply and Interest Rates
Explanation
An increase in the money supply, assuming demand remains constant, typically leads to lower nominal interest rates.
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