Explain the relationship between interest rates and the demand for money, as described by the Keynesians
According to the Keynesians, there is an inverse relationship between the interest rate and the quantity of
money people demand. This is because the interest rate is the opportunity cost of holding money. When the
interest rate rises, the opportunity cost of holding money rises, inducing people to hold their assets in the
form of nonactive money such as interest-bearing notes, bills, or CDs. When the interest rate falls, the
opportunity cost of holding money falls and people are more inclined to hold money in order to speculate
on future interest rate increases.
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If A>B and B>C do not imply A>C, where > means "preferred to", then preferences are intransitive
Indicate whether the statement is true or false
Which of the following monetary policy tools was introduced in 2008?
A. The discount rate. B. The federal funds rate. C. Open-market operations. D. Interest on reserves held at the Fed.