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1. If a change in government regulations allows banks to start paying interest on chequing accounts...

1. If a change in government regulations allows banks to start paying interest on chequing accounts this will: a) increase the demand for currency but decrease the demand for chequing accounts. b) decrease the demand for money. c) have no effect on the demand for money. d) increase the demand for money.

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Answer #1

option D.

  • If a change in government regulations allows banks to start paying interest on checking accounts this will increase the demand for money.
  • Checking account refers to the deposit account in banks which allows individuals to deposit and withdraw their deposits when required.
  • If an interest rate is imposed on these checking deposits, people refrain themselves from keeping deposits in their banks, but they are more encouraged to hold money in their hands.
  • Hence, interest rates on checking deposits will increase the demand for money.
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