Which of the following explains why the demand for money curve reveals an inverse relationship between interest rates and the quantity of money demanded?
a. As interest rates rise, the opportunity cost of holding money rises, and people respond by converting cash or checking account balances into interest-bearing financial investments.
b. As interest rates fall, the opportunity cost of holding money rises, and people respond by converting cash or checking account balances into interest-bearing financial investments.
c. As interest rates rise, the opportunity cost of holding money falls, and people respond by converting their interest-bearing financial assets into cask or checking account balances.
d. As interest rates rise, people find it advantageous to borrow money, which increases the quantity of money demanded.
a
You might also like to view...
An increase in expected future disposable income ________ consumption expenditure and ________
A) increases; shifts the consumption function downward B) increases; shifts the consumption function upward C) decreases; shifts the consumption function upward D) increases; results in a movement upward along the consumption function E) decreases; shifts the consumption function downward
Refer to Figure 10.8. Other things equal, a decrease in the nominal money supply would best be represented by
A) a movement from point A to point C. B) a movement from point A to point D. C) a shift from LM1 to LM2. D) a shift from LM2 to LM1.