If the level of interest rates paid on time deposits rise relative to that paid by money market accounts,ceteris paribus,individual will
A)reduce their real money balances.
B)first reduce then increase their real money balances.
C)increase their real money balances.
D)hold the same amount of money.

Question

Quizplus · Accepted Answer

When interest rates on time deposits rise relative to those on money market accounts, individuals are likely to shift their funds into time deposits to take advantage of the higher returns. This shift means they will hold less in their money market accounts or in forms that are counted as part of their real money balances, thus reducing their real money balances.

If the Level of Interest Rates Paid on Time Deposits