If the price level is fixed, the demand for money depends on changes in which of the following?
A) the exchange rate with trading partners
B) government purchases of domestic bonds
C) GDP and/or the domestic rate of interest
D) the total value of assets held by the central bank

Question

Quizplus · Accepted Answer

The demand for money is determined by the desire of individuals and firms to hold money balances relative to other assets. This desire is influenced by a number of factors, including the level of GDP and the domestic interest rate. When GDP is higher or interest rates are lower, people tend to want to hold more money to facilitate transactions and finance investments. Conversely, when GDP is lower or interest rates are higher, people tend to want to hold less money and invest in other assets instead. The exchange rate, government bond purchases, and central bank assets may all have some effect on the demand for money, but they are not the primary determinants of this relationship.

If the Price Level Is Fixed, the Demand for Money