AP Macroeconomics Question 373: Answer and Explanation

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Question: 373

8. Households demand more money as an asset when

  • A. nominal GDP falls.
  • B. the nominal interest rate falls.
  • C. bond prices fall.
  • D. the supply of money falls.
  • E. nominal GDP increases.

Correct Answer: B


B-Asset demand for money is negatively related to the interest rate. Lower interest rates decrease the opportunity cost of holding money.