What is a primary determinant of the asset demand for money? I. the interest rate
II) the opportunity cost of holding money
III) the supply of money

Question

Quizplus · Accepted Answer

The primary determinant of the asset demand for money is the interest rate, as people will demand more money when interest rates are higher. Additionally, the opportunity cost of holding money also affects the demand for money, as people will be more likely to hold onto money if the opportunity cost (i.e. potential return on other assets) is low. The supply of money is not a primary determinant of asset demand but rather affects the equilibrium level of interest rates. Therefore, both I and II are correct and the best answer is C.

What Is a Primary Determinant of the Asset Demand for Money