When interest rates rise,the quantity demanded of money held for the:
A)speculative demand rises.
B)precautionary demand rises.
C)transactions demand falls.
D)precautionary demand falls.
E)speculative demand falls.

Question

Quizplus · Accepted Answer

When interest rates rise, people are likely to hold less money for speculative purposes (such as investing in stocks or other financial instruments) because the return on those investments becomes less attractive compared to the return on holding cash. Therefore, the speculative demand for money falls. The transactions demand for money may remain relatively unchanged since people still need to make purchases and pay bills, but the precautionary demand for money may rise as people try to save more in anticipation of higher interest rates in the future.

When Interest Rates Rise,the Quantity Demanded of Money Held for The