Which of the Following Correctly Describes the Relationship Between the Demand

question 55

Multiple Choice

Which of the following correctly describes the relationship between the demand for money and interest rates?

• A) Interest rates and money demand are negatively related.
• B) Interest rates and money demand are positively related.
• C) Money demand is independent of interest rates.
• D) Interest rates affect money demand through the marginal propensity to import.

---

Definitions:

Discount Rate

The interest rate charged by central banks for short-term loans to commercial banks, influencing monetary policy and economy liquidity.

Required Reserve Ratio

The fraction of deposits that a bank is legally required to hold as reserves, either in its own vaults or with a central bank.

Government Spending

Expenditures made by the government for its operations, provision of public services, or interventions in the economy.

U.S. Government Securities

Fixed-income investments backed by the full faith and credit of the United States government, including Treasury bills, notes, and bonds.