Which of the following will cause the money demand curve to shift to the right?
Which of the following will cause the money demand curve to shift to the right?a. a reduction in the interest rateb. an increase in the interest ratec. an open market purchase of bonds by the central bankd. an increase in incomee. an introduction of credit cardsstatic/image/hrline/5.gif
The correct answer is (d) an increase in income.An increase in income will cause the money demand curve to shift to the right. When people's income increases, they will generally want to hold more money to make purchases and investments. This increased demand for money will shift the money demand curve to the right.(a) A reduction in the interest rate will cause an increase in the quantity of money demanded, but it will not shift the money demand curve.(b) An increase in the interest rate will cause a decrease in the quantity of money demanded, but it will not shift the money demand curve.(c) An open market purchase of bonds by the central bank will increase the money supply, which will lead to a decrease in the interest rate, but it will not shift the money demand curve.(e) The introduction of credit cards will not shift the money demand curve because credit cards are a method of payment, not a change in the demand for money.
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