The least responsive to interest rate changes is the ____ demand for money.

Question

Quizplus · Accepted Answer

Precautionary demand for money is based on the need for individuals to hold cash for unexpected events, such as emergencies or unforeseen expenses. This demand is not heavily influenced by interest rate changes since individuals prioritize the need for cash over the potential return on it. Transactions demand for money, on the other hand, is highly responsive to interest rate changes since it is based on the need for individuals to hold cash for day-to-day transactions. Speculative demand for money is also responsive to interest rate changes since it is based on the desire to hold cash or liquid assets in anticipation of interest rate increases.

The Least Responsive to Interest Rate Changes Is the ____