The notion of a "dominated asset" implies that the portfolio theory of money demand should not be used to explain the demand for:

Question

Quizplus · Accepted Answer

The portfolio theory of money demand suggests that people hold money as part of a portfolio of assets, balancing risk and return. M1 includes currency and checking deposits, which are dominated assets because they offer no interest or lower returns compared to other assets. Therefore, portfolio theory is less applicable to explaining the demand for M1.

The Notion of a "Dominated Asset" Implies That the Portfolio