The items below will cause either an increase (represented in the graph as a shi

Question

The items below will cause either an increase (represented in the graph as a shift from MDI to MD3) or a decrease (from MD1 to MD2) in the demand for money. Place each item below in the corresponding bin. Interest Rate The MD curve will shift to the right (MD3) if ... The MD curve will shift to the left (MD2) if ... Quantity of Money Real GDP increases. Crime rates increase, increasing the likelihood that people will be robbed. The government restricts the hours during which ATMs are allowed to be open. M03 MD2 MDI Real GDP decreases. There is a decrease in the number of shops accepting debit cards. The aggregate price level increases. The aggregate price level decreases.

Explanation / Answer

Increase in money demand will shift money demand curve to right.

MD3 Reason MD2 reason Real GDP increases Transaction demand for money increases Real GDP decreases Transaction demand decreases decreases in shop accepting debit cards demand for cash will increase. Crime rate increases, increasing the likelihood that people will be robbed people will keep money in some other form increase in price level more money is needed to buy the same product as real balance effect decrease in price level government restrict the hour during which ATM are allowed people need money for transaction purposes, so they will keep more cash with them

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