The demand for money as a medium of exchange is best explained by theories of money demand, while the demand for money as a store of value is best explained by theories of money demand.
A)rational expectations; quantity
B)quantity; rational expectations
C)portfolio; transaction
D)transaction; portfolio

Question

Quizplus · Accepted Answer

The demand for money as a medium of exchange is related to transaction demand, while the demand for money as a store of value is related to portfolio demand. Therefore, theories of money demand that focus on transaction demand (such as the quantity theory of money) are best for explaining the demand for money as a medium of exchange, while theories that focus on portfolio demand (such as the theory of rational expectations) are best for explaining the demand for money as a store of value. Choice D is the only option that correctly pairs transaction demand with theories of money demand and portfolio demand with theories of money demand.

The Demand for Money as a Medium of Exchange Is