the current interest rate in atlantis is 4%. at an interest rate of 4%, households want to hold $4 million…

the current interest rate in atlantis is 4%. at an interest rate of 4%, households want to hold $4 million in cash and $2 million in bonds. however, m1 is currently $3 million. which of the following best describes what will happen in the money market in atlantis? choose 1 answer: a the nominal interest rate will increase, which will increase the quantity of money supplied b the nominal interest rate will increase, which will lower the quantity of money demanded c the real interest rate will increase, which will increase the supply of money d the nominal interest rate will increase, which will lower the demand for money e the nominal interest rate will decrease, which will lower the quantity of money demanded

the current interest rate in atlantis is 4%. at an interest rate of 4%, households want to hold $4 million in cash and $2 million in bonds. however, m1 is currently $3 million. which of the following best describes what will happen in the money market in atlantis? choose 1 answer: a the nominal interest rate will increase, which will increase the quantity of money supplied b the nominal interest rate will increase, which will lower the quantity of money demanded c the real interest rate will increase, which will increase the supply of money d the nominal interest rate will increase, which will lower the demand for money e the nominal interest rate will decrease, which will lower the quantity of money demanded

Answer

Brief Explanations:

At the current interest - rate, households want to hold $4 million in cash (a part of money demand), but $M1 (money supply) is only $3 million. There is a shortage of money. When there is a shortage of money in the money market, the nominal interest rate will increase. According to the inverse relationship between the nominal interest rate and the quantity of money demanded (from the money - demand curve), as the nominal interest rate rises, the quantity of money demanded will fall to restore equilibrium in the money market.

Answer:

B. The nominal interest rate will increase, which will lower the quantity of money demanded