Money Markets Quiz

What is money demand?

• The desire to hold wealth in the form of bonds

• The desire to hold wealth in the form of money instead of assets

• The total amount of currency in circulation

• The amount of money banks create through lending

What are the two forms of money demand?

• Asset demand and transaction demand

• Credit demand and loan demand

• Savings demand and investment demand

• Capital demand and equity demand

What is the primary reason people hold money for transaction purposes?

• To earn interest on cash

• To facilitate daily purchases and payments

• To invest in financial assets

• To accumulate long-term wealth

Asset demand for money is based on which of the following?

• The need for immediate purchases

• The opportunity cost of holding money versus investing in assets

• The amount of government debt

• The level of taxation on income

If the nominal interest rate increases, what happens to the quantity of money demanded?

• It increases

• It decreases

• It remains unchanged

• It fluctuates randomly

Why is there an inverse relationship between the nominal interest rate and the quantity of money demanded?

• Higher interest rates make holding money less attractive

• Lower interest rates make borrowing more expensive

• Money supply increases as interest rates rise

• People need more money when interest rates increase

As interest rates decline, what happens to the asset demand for money?

• It decreases because people prefer to hold money instead of investing

• It increases because people prefer to invest in higher-yield assets

• It remains constant

• It fluctuates unpredictably

Which of the following explains why people demand less money when interest rates are high?

• The opportunity cost of holding money is higher

• Prices decrease significantly

• The government restricts access to money

• Banks reduce the money supply

Which of the following is NOT a determinant of money demand?

• Price level

• Real GDP

• Technological advancements in banking

• The federal minimum wage

If real GDP increases, how does it affect money demand?

• Money demand decreases

• Money demand remains unchanged

• Money demand increases because people need more money for transactions

• Interest rates decrease