Question

The demand for money depends primarily upon: interest rates and aggregate output. interest rates and the...

The demand for money depends primarily upon:

interest rates and aggregate output.

interest rates and the level of the stock market.

real income and wealth.

inflation and the unemployment rate.

the value of gold.
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Answer #1

The correct answer is interest rates and aggregate output.

Because demand for money is inversely related to the interest rate, when interest rate fall, holding bonds give lower return so people prefer to hold cash and vice versa.

Demand for money also need for transaction motive. The total number of transaction made in the economy is increases over a time as income increases. Hence, as income or GDP( aggregate output) rises, the transaction demand for money also rises.

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