AP Macroeconomics Question 373: Answer and Explanation
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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.