- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 12. Monetary and Fiscal Policy
- Subject 2. The Demand for and Supply of Money
CFA Practice Question
What factor will increase the quantity of real money that people plan to hold?
II. A drop in the nominal interest rate
III. A rise in the price level
IV. A drop in the price level
I. A rise in the nominal interest rate
II. A drop in the nominal interest rate
III. A rise in the price level
IV. A drop in the price level
Correct Answer: II
Similarly, a rise in the nominal interest rate on other assets decreases the quantity of real money that people plan to hold.
A rise in the price level increases the quantity of nominal money but doesn't change the quantity of real money that people plan to hold.
User Contributed Comments 5
| User | Comment |
|---|---|
| pepper | tricky question, miss out on the 'real' part |
| prajacti | me too!! |
| Gooner7 | agree good question |
| bundy | isn't real money = nominal money/P so if P increases the Q of real money demanded decreases? |
| pbielstein | @bundy: The assumption is that if P increases, nominal demand for money will increase in the same proportion so that real money demanded remains the same. |