ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -If income increased, then the demand for money would increase, as seen in the shift from Md to Md′. Money demand increases because, at the higher level of income, people want to hold more money to support the increased spending on transactions.

Detailed explanation-2: -When there is an increase in the price level, the demand for money increases. Conversely, when there is a decrease in the price level, the demand for money decreases.

Detailed explanation-3: -Which of the following is true of the demand for money? The greater the value of transactions to be financed in a given period, the greater the demand for money. Holding wealth in the form of money involves sacrifice of interest that could have been earned by holding financial assets other than money.

Detailed explanation-4: -For most goods, there is a positive (direct) relationship between a consumer’s income and the amount of the good that one is willing and able to buy. In other words, for these goods when income rises the demand for the product will increase; when income falls, the demand for the product will decrease.

Detailed explanation-5: -If income rises as a straight line, the quantity of money will increase at a decreasing rate, then reach a maximum, and decline thereafter.