Which of the following factors would increase the transactions demand for money?

Option a: Rumors that a computer virus had invaded the ATM network

Option b: A fall in nominal income

Option c: Lower nominal interest rates

revised jrl 07-26-2011

A. Only option b would increase the transactions demand for money as people would be spending more on goods and services in the face of a fall in nominal income.

B. Both options a and c would increase the transactions demand for money. Lower nominal interest rates would reduce the opportunity cost of holding money, while a computer virus in the ATM network would lead to worries about the system closing down. Both of these factors will increase the transactions demand for money.

C. Only option a would increase the transactions demand for money as a computer virus in the ATM network would lead to worries that the system would shut down. Lower nominal interest rates and a fall in nominal income would both lead to a fall in the transactions demand for money.

D. Only option c would increase the transactions demand for money due to the lower opportunity cost of holding money. Options b and a would both lead to a fall in the transactions demand for money.