Question

In the context of the money market, an increase in income would make : a. demand for money shift to the left b. the interest rate go up the interest rate go down d. the price level increase as people would want to buy more goods QUESTION 2 An increase in the price level, ceteris paribus, would a. make interest rate go up b. make the interest rate go down C. cause the demand for money shift to the right d. cause the demand for money shift to the left QUESTION 3 In the context of the market, an increase in the interest rate would a. make the demand for money increase (shift to the right) b. make the demand for money decrease (shift to the left) C. the supply of money shift to the left od none of the above

Answer 1

1. An increase in income would make the interest rate goes up because in the money market higher income leads to increase in the demand for money , since the supply of money does not change as it's constant so the interest rate must rise in order to maintain equilibrium . So correct answer is (b) the interest rate goes up.
2. An increase in price will leads to rightward shift in money demand curve because higher the level of price more the money is required to purchase the goods . All things remaining unchanged the increase in price leads to increase in the demand for money. So correct answer is (c) cause demand for money shifts to right.
3. An increase in interest rate would neither leads to shift in demand for money curve nor it leads to shift in supply of money curve . Although there is an inverse relationship between the interest rate and the quantity of money demanded ,but increase or decrease in interest rate never leads to shift in the demand for money curve . So the correct answer is (d) none of the above .