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In: Economics

Interest rate, transaction demand, and asset demand

How does the above data suggest the amount of money that society wishes to hold as an asset with the interest rate?

Solutions

Expert Solution

A rise in interest rates reduces the amount of money demanded. A decrease in interest rates raises the amount of money demanded.

 

The market interest rate is inversely connected to the demand for money assets. This is due to the fact that with a lower interest rate, more individuals expect the interest rate to climb.

When the interest rate is at a high level, people prefer not to hold large amounts of money. When the interest rate is high, people will prefer to get a large return rather than spending or holding large amounts of money. While the Interest Rate is at a fairly low level, people will choose to hold money in a fairly high number.

Cinnamon answered 2 years ago
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