Questions and Answers
When a consumer holds money to meet spending needs, this is an example of the:
transactions demand for money
A decrease in the rate of interest would:
decrease the opportunity cost of holding money
The transactions demand for money will shift to the:
left when the interest rate decreases
The asset demand for money:
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Which of the following is correct:
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Study Notes
Demand for Money
- When a consumer holds money to meet spending needs, this is an example of the transactions demand for money.
Effect of Interest Rate on Demand for Money
- A decrease in the rate of interest would increase the asset demand for money, shifting the asset demand curve to the right.
Shift in Transactions Demand
- The transactions demand for money will shift to the right if consumers expect prices to rise in the future, as they would want to hold more money now to make purchases before prices increase.
Asset Demand for Money
- The asset demand for money is the desire to hold money as a store of value, rather than for transactions purposes.
Correct Statement
- The correct statement is that the demand for money is influenced by both transactions and asset motives.
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