Which of the following statements is true ?
A) The speculative demand for money at possible interest rates gives the demand for money curve its upward slope.
B) There is an inverse relationship between the quantity of money demanded and the interest rate.
C) According to the quantity theory of money, any change in the money supply will have no effect on the price level.
D) The transactions demand for money is used as an insurance agent against unexpected needs.

Question

Quizplus · Accepted Answer

The inverse relationship between the quantity of money demanded and the interest rate is one of the basic principles of monetary theory. As interest rates increase, the opportunity cost of holding money rises, and people demand less money. Conversely, as interest rates fall, the opportunity cost of holding money decreases, and people demand more money. This relationship gives the demand for money curve its downward slope. Option A is incorrect because the speculative demand for money is what gives the demand for money curve its downward slope. Option C is incorrect because according to the quantity theory of money, an increase in the money supply leads to an increase in the price level, and vice versa. Option D is incorrect because the transactions demand for money is used to facilitate transactions, not as an insurance agent.

Which of the Following Statements Is True