A major contributing factor to the instability of money demand over the past 25 years is the:

Question

Quizplus · Accepted Answer

The introduction of financial instruments that pay higher returns, such as money market mutual funds and other short-term investments, has given people more options beyond traditional money balances, which has made money demand less stable. While these instruments are not considered money in the strictest sense, they perform many of the same functions and are therefore considered close substitutes. This means that when interest rates on these instruments increase, people are more likely to hold them instead of holding onto money balances, which shifts the demand for money curve to the left.

A Major Contributing Factor to the Instability of Money Demand