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Macroeconomics

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Moderate

The Money Market: Change in the Demand for Money

MACRO-RK@IVK

Suppose interest rates in the country of Pentos have recently experienced a substantial decline due to large increases in the money supply. Which of the following correctly describes the changes in the demand for money holdings that would occur as a result of these changes?

A

The quantity demanded for money would increase as people will want more of it to make day-to-day transactions.

B

The quantity demanded for money would increase as some people will want more of it to in order to be able to take advantage of investment opportunities when interest rates increase.

C

The quantity demanded for money would fall as people will want less of it to make day-to-day transactions.

D

The quantity demanded for money would not change because there is no relationship between interest rates and the overall demand for money.

E

The quantity demanded for money would increase as people will want more of it in order to buffer themselves from unforeseen circumstances.