The quantity of money demanded increases if the supply of money increases the no

Question

The quantity of money demanded increases if the supply of money increases the nominal interest rate falls banks increase the interest rate on deposits the price of a bond falls I. If the Fed increases the quantity of money people will be holding too much money, so they buy bonds and the interest rate rises " too much money, so they buy bonds and the interest rate falls the quantity of money they demand and banks will hold more money more money and will increase their demand for money In the long run, money market equilibrium determines the real interest rate price level nominal interest rate economic growth rate If the quantity theory of money is correct and other things remain the an increase in the quantity of money increases nominal GDP and the velocity of circulation the price level and potential GDP real GDP nominal GDP and the price level In the long run with a constant velocity of circulation, the inflation rate is constant and equals the money growth rate equals the money growth rate minus the growth rate of real GDI1 equals the growth rate of real GDP minus the growth rate of mom) is positive if the economic growth rate is positive The costs of inflation do not include the cost of running around to compare prices at different the increased opportunity cost of holding money the tax on money held by individuals and businesses

Explanation / Answer

Q3. The quantity of money demanded increases, if the supply of money increases. This is because when supply of money increases, interest rate falls.

Fall in interest rate reduces the opportunity cost of holding money and this induces the firms and households to demand more money and therefore the quantity of money demanded increases.

Hence, the correct answer is option (A).

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