The Tobin mean-variance analysis of money demand is an application of ________.
A) the theory of portfolio choice
B) the equation of exchange
C) a variance-at-risk model
D) both A and C

Question

Quizplus · Accepted Answer

The Tobin mean-variance analysis of money demand is based on the theory of portfolio choice. It suggests that the demand for money is determined by the optimal trade-off between the returns and risks of holding money and alternative assets. The analysis involves weighing the returns and variances of different assets in order to arrive at the optimal combination or portfolio of assets. Therefore, choice A, which states that it is an application of the theory of portfolio choice, is the best answer. Choice B, the equation of exchange, is not applicable to the Tobin mean-variance analysis. Choice C, a variance-at-risk model, is related to measuring the risk of a portfolio but does not accurately capture the essence of the Tobin mean-variance analysis, so it is not a good choice. Choice D is incorrect because only choice A is correct, but choice C is not generally applicable to the theory of portfolio choice, which is the main basis of the analysis.

The Tobin Mean-Variance Analysis of Money Demand Is an Application