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Question : Which of the following statements is/are correct concerning the demand for money?
i. When the interest rate is high, the demand for money is low.
ii. When the interest rate is low, demand for money is also low.
iii. When the interest rate is high, demand for money is also high.
iv. When the interest rate is low, demand for money is high.

Option 1: Only ii and iv

Option 2: Only i and iv

Option 3: Only ii and iii

Option 4: Only i and ii


Team Careers360 17th Jan, 2024
Answer (1)
Team Careers360 18th Jan, 2024

Correct Answer: Only i and iv


Solution : The correct answer is Only i and iv .

When the interest rate is high, the demand for money is low because people are more inclined to save in interest-bearing accounts rather than hold cash, which doesn't yield any interest. When the interest rate is low, demand for money is high as the opportunity cost of holding cash is lower, and people may prefer to keep more cash on hand for transactions. As interest rates rise, the demand for money decreases because the opportunity cost of holding cash increases.

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