Which of the following explains why the demand for money curve has an inverse relationship between...
Which of the following explains why the demand for money curve has an inverse relationship between the interest rates and the quantity of money demanded?
| a. |
As the interest rate falls, the opportunity cost of holding money rises, and people respond by converting cash or checking account balances into interest-bearing financial investments. |
|
| b. |
As the interest rate rises, the demand for money curve shifts outward to the right. |
|
| c. |
As the interest rate rises, people find it advantageous to borrow money, which increases the quantity of money demanded. |
|
| d. |
As the interest rate rises, the opportunity cost of holding money rises, and people respond by converting cash or checking account balances into interest-bearing financial investments. |
Homework Answers
"D"
As the interest rate rises, the opportunity cost of holding money rises, and people respond by converting cash or checking account balances into interest-bearing financial investments.
at a higher interest rate if they hold cash they are losing in the interest that they can earn in the market, that will make them keep more deposits and reduce the demand for money.
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