If the Demand for Money Increases and the Monetary Authorities

question 145

Multiple Choice

If the demand for money increases and the monetary authorities want interest rates to remain unchanged, which of the following would be appropriate policy?

• A)recall currency from circulation
• B)raise the desired reserves
• C)buy bonds in the open market
• D)raise the bank rate

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Definitions:

Minimizing Cash Holdings

A financial strategy focused on reducing the amount of cash a company or individual keeps on hand, often to boost efficiency or investment returns.

Relaxed Working Capital Policies

Financial strategies that involve maintaining higher levels of current assets than necessary or reducing short-term liabilities, aiming for greater flexibility and lower risk of liquidity problems.

Short-term Loans

Borrowed funds that require repayment within a shorter timeframe, typically less than one year.

Long-term Loans

Financial obligations that are due for repayment over a period longer than one year.