Final answer:
The statement is false; the transaction demand for money and the asset demand do not directly determine the equilibrium interest rate. Instead, the equilibrium interest rate is found where the overall market demand for financial capital meets the supply of such capital, like in the market for credit card borrowing.
Step-by-step explanation:
False. The transaction demand for money (D1) doesn't directly meet the asset demand (D2) to determine the equilibrium interest rate. Instead, the equilibrium interest rate is achieved where the demand for financial capital (such as borrowing with credit cards) intersects with the supply of financial capital.
For example, in the market for credit card borrowing, the demand curve (D) for borrowing financial capital intersects the supply curve (S) for lending financial capital at the equilibrium point (E). At this equilibrium, the interest rate is determined and both the quantity of financial capital loaned and the quantity demanded are equal.
The transaction demand for money is related to money needed for everyday transactions, while the asset demand for money is related to holding money as an asset for speculative purposes. These demands are part of the overall demand for money, but it is the broader financial markets that integrate these demands with the supply of funds to establish the equilibrium interest rate.