Money Demand and Interest Rates Quiz

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Questions and Answers

When a consumer holds money to meet spending needs, this is an example of the:

use of money as legal tender
transactions demand for money (correct)
use of money as a measure of value
asset demand for money

A decrease in the rate of interest would:

decrease the price of bonds
decrease the opportunity cost of holding money (correct)
increase the asset demand for money
increase the transactions demand for money

The transactions demand for money will shift to the:

right when aggregate income increases
right when aggregate income decreases
right when the interest rate increases
left when the interest rate decreases (correct)

The asset demand for money:

<p>varies inversely with the rate of interest (B)</p> Signup and view all the answers

Which of the following is correct:

<p>The asset demand for money is downward sloping because the opportunity cost of holding money declines as the interest rate rises (C)</p> Signup and view all the answers

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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.