Econ Help Please!?

Question

Which of the following decreases the demand for nominal money?
a.) a decrease in the price level
b.) a decrease in the nominal interest rate
c.) an increase in the cost of using automatic teller machines
d.)an increase in real GDP


The opportunity cost of holding money refers to

a.) the pleasure that would have been received if the money balances had been used to buy a good or service.
B.) the price level.
C.) the interest that could have been earned if the money balances had been changed into an interest-bearing asset.
D.) the service fees charged to withdraw currency from an ATM.

Answer 1

The first one is a. If things cost less in nominal terms then people have less demand for money.

The second one is also a. That is the definition of opportunity cost. The foregone utility derived from the next best use of the money

Answer 2

The other guy is right. (see Cameron, p. 167)

We are in an inflationary-biased economy. But during deflation, the nominal GNP rises by price level increases and that increases the demand for nominal money (see Dunn, Igram, and Mutti, p. 433).

In Sobel et al.'s discussion of Milton Friedman, they describe some factors or types of reasons to hold money, plus how Friedman showed the effect of interest rates on the opportunity cost of holding money (p. 304). Besides the basic holding, to get something you want or need, there are "precautionary motives". So if you are saving for a "rainy day", interest rate changes may introduce an extra cost for holding cash. So there is "a" and maybe "c", and in deflationary times, possibly "b". LOL, yep, economics does get complicated. Good luck.