An increase in the equilibrium price of a nation's money could be caused by a (an) a. decrease in the supply of the money. b. decrease in the demand for the money. c. increase in the supply of the money. d. increase in the quantity of money demanded.

Short Answer

Expert verified
The short answer is: An increase in the equilibrium price of a nation's money could be caused by a decrease in the supply of the money (Option A). This is because when the money supply decreases, the value of each unit of money becomes higher due to its increased scarcity, leading to an increase in the equilibrium price of money.

Step by step solution

01

Understanding Equilibrium Price of Money

The equilibrium price of money is the price level at which the quantity of money demanded equals the quantity of money supplied in an economy. In this context, the equilibrium price reflects the value of money, and changes in this value can cause an increase or decrease in the equilibrium price.
02

Analyzing Option A

Option A suggests that a decrease in the supply of money will cause an increase in the equilibrium price of a nation's money. When the money supply decreases, the value of each unit of money becomes higher due to its increased scarcity. As a result, the equilibrium price of money will go up. This option is correct.
03

Analyzing Option B

Option B suggests that a decrease in the demand for the money will lead to an increase in the equilibrium price of a nation's money. If the demand for money decreases, it means that people are placing a lower value on money, and therefore, the equilibrium price of money should decrease. This option is incorrect.
04

Analyzing Option C

Option C suggests that an increase in the supply of money will cause an increase in the equilibrium price of a nation's money. When the money supply increases, the value of money generally decreases due to inflation. Therefore, the equilibrium price of money would decrease in this situation, not increase. This option is incorrect.
05

Analyzing Option D

Option D suggests that an increase in the quantity of money demanded will cause an increase in the equilibrium price of a nation's money. A higher demand for money can result in a higher value of money if the supply remains unchanged. However, this option only focuses on the quantity demanded, not on the overall demand for money, which would be a better indicator if there were changes in its value. This option is less correct than option A but might also hold some truth. Conclusion: The best answer is 'Option A': an increase in the equilibrium price of a nation's money could be caused by a decrease in the supply of the money. This option reflects the concept of scarcity in the economy and its effect on the value of money.

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