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Which of the following is correct?

a. The asset demand for money is downsloping because the opportunity cost of holding money declines as the interest rate declines.

b. The asset demand for money is downsloping because bond prices and interest rates are directly related.

c. The transaction demand for money is downsloping because the opportunity cost of holding money varies inversely with the interest rates.

d. The asset demand for money is downsloping because the opportunity cost of holding money increases as the interest rate rises. 

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Sonia Dhawan
Sonia DhawanLv10
15 Jan 2021
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Related questions

Explain how each of the following events affects the monetary base, the money multiplier, and the money supply.

a. The Fed increases the interest rate it pays banks for holding reserves. When the Fed increases the interest rate, it pays banks to hold reserves.

b. All money is held as demand deposits. Banks hold 20 percent of deposits as reserves.

c. People hold equal amounts of currency and demand deposits. Banks hold 20 percent of deposits as reserves.

Choose the correct answer from the brackets:

A)The demand for money is mainly influenced by three variables: r (the short-term interest rate), Y (real GDP), and P (the aggregate Price level). Suppose r rises, but Y and P are unchanged. What happens to the quantity of money demanded?

r is both the opportunity cost of holding money and the reward for holding bonds. Thus, an increase in r causes people to want to hold (more/less ) of their wealth in the form of money and ( more/less) in the form of bonds to take advantage of the higher interest rate.

B)

Suppose real income (Y) rises while the quantity of money in the economy stays the same. What happens to money demand?

The supply of money does not automatically rise when the production of real goods and services (Y) rises. However, the collective demand for money by firms and households does rise. To get this money firms and households attempt to (buy more/ sell some of their /more /less bonds).

Thus, an increase in Y causes people to want to hold (buy more /sell some of their / more /less) of their wealth in the form of money and (buy more / sell some of their / more / less ) in the form of bonds.

C)Suppose the price level (P) rises, but Y and r are unchanged. What happens to money demand?

If Y is unchanged, people will want to buy the same amount of goods and services as before. However, since P is higher, they will need (more / less) money to do so.

Hence, an increase in P causes people to want to hold (more / less) of their wealth in the form of money and (more / less) in the form of bonds.

3.If the demand for labor is plotted against the money wage, with the money wage on the vertical axis, then

A)an increase in the price level will cause the labor demand schedule to shift to the right.

B)an increase in the money wage will cause the labor demand schedule to shift to the left.

C)an increase in the money wage will cause the labor demand schedule to shift to the right.

D)the labor demand schedule will be upward sloping.

5. According to the classical model, a 10-percent increase in the money supply, holding everything else constant, will lead to

A) a 10% increase in prices, a 10% increase in the real wage, and a 10% increase in interest rates.

B)a 10% increase in prices, a 10% increase in the money wage, and a 10% increase in interest rates.

C)a 10% increase in prices, a 10% increase in the money wage, and no change in interest rates.

D)a 10% increase in prices and no change in the money wage or interest rates.

E)none of the above.

7. If the propensity to hold money is 6 and the money supply is 12, then the classical aggregate demand curve is

A) P = 2Y

B)P/Y = 48

C)P = 1/(2Y)

D)P = 2/Y

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