Unpredictable shocks to the financial system
A) reduce the demand for money.
B) increase the demand for money.
C) cause consumers and firms to switch to credit cards.
D) affect small depositors more so than large depositors.
E) result in money neutrality.

Question

Quizplus · Accepted Answer

Unpredictable shocks to the financial system often result in increased uncertainty and risk, which leads consumers and firms to increase their demand for money as a precautionary measure. This is because holding cash or liquid assets provides a buffer against potential financial losses or emergencies.

Unpredictable Shocks to the Financial System