A decrease in online credit card purchases would cause the money demand curve to shift

A decrease in online credit card purchases would cause the money demand curve to shift

• A. Inward
• B. Outward
• C. No change
• D. Upward along the current curve

Answer: (B)

The main idea is how money demand responds to how people finance their transactions. Credit cards used for online purchases serve as a substitute for holding cash. If online credit card purchases decrease, people rely less on credit cards and must hold more money to cover their transactions. At every interest rate, the quantity of money people want to hold goes up, so the money-demand curve shifts outward (to the right). A movement along the curve would only happen if the interest rate changed, but here the change is in how payments are financed, not the cost of holding money. So, the outward shift correctly reflects the higher demand for money when online credit card usage falls.

The main idea is how money demand responds to how people finance their transactions. Credit cards used for online purchases serve as a substitute for holding cash. If online credit card purchases decrease, people rely less on credit cards and must hold more money to cover their transactions. At every interest rate, the quantity of money people want to hold goes up, so the money-demand curve shifts outward (to the right). A movement along the curve would only happen if the interest rate changed, but here the change is in how payments are financed, not the cost of holding money. So, the outward shift correctly reflects the higher demand for money when online credit card usage falls.