Final answer:
Alistair prefers a precautionary demand for money, keeping funds readily available in his checking account for emergencies or unexpected needs. In high inflation situations, contractionary monetary policy is expected to control inflation, whereas expansionary fiscal policy is used to tackle economic recessions. Option 4. is correct.
Step-by-step explanation:
Alistair depositing his entire paycheck into his checking account just in case prices fall is an example of the precautionary demand for money. Unlike speculative demand, which is holding money for future investments when the value might increase, or transactions demand, which is for the purpose of buying things immediately, precautionary demand is the money kept on hand for unforeseen events or emergencies. This is exemplified by keeping funds in a demand deposit like a checking account, which is accessible at any time for unexpected needs or opportunities.
Regarding monetary policy in response to high inflation, a contractionary monetary policy is typically expected. This policy aims to decrease the money supply within an economy, often by raising interest rates, with the intention of controlling inflation. Conversely, if there is a recession, an expansionary fiscal policy is deemed appropriate, which involves increasing government spending or decreasing taxes to stimulate economic growth.