Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
A reduction in credit card fees typically leads to an increase in the demand for physical cash.
B
Lower credit card fees encourage consumers to use credit cards more frequently, reducing the demand for physical money.
C
As the demand for physical money decreases, nominal interest rates tend to fall.
D
A decrease in money demand can lead to a leftward shift in the money demand curve, affecting the equilibrium interest rate.
E
Higher usage of credit cards due to lower fees has no impact on aggregate demand.
Understanding the Answer
Let's break down why this is correct
Answer
When credit card fees decrease, people are likely to use their credit cards more. This means they will hold less cash because they can rely on their cards for purchases. As a result, the demand for money decreases. At the same time, lower fees can lead to lower nominal interest rates, which makes borrowing cheaper. For example, if a person decides to buy a new phone using a credit card with no fees, they might not need to keep as much cash on hand, showing how the demand for money decreases when fees are lower.
Detailed Explanation
Other options are incorrect because People often think that lower fees make cash more popular; Some might believe that using cards more means cash is needed less.
Key Concepts
Money Demand
Interest Rates
Consumer Behavior
Topic
Money Demand and Interest Rates
Difficulty
medium level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.