Question

true or false then EXPLAIN why. Since many forms of money do not earn interest, people's demand for money is unaffected by changes in interest rates. HTML EditorKeyboard Shortcuts

Answer 1

False

Step-by-step explanation:

It is true that many forms of money do not earn interest. However, it is not true that this means that people's demand for money is unaffected by changes in interest rates. One of the ways interest rates can change the demand for money is because this can influence the way people divide their money. When a person has money, he can decide whether to keep this in teh form of money, or whether to keep wealth through another asset. When interest rates decrease, people are more likely to keep money in the form of money, as opposed to other assets. This is the source of the demand for money.

Answer 2

False. Demand for money is affected by changes in interest rates

Step-by-step explanation:

The demand for money is the amount of assets individuals wish to hold in monetary form. It is a choice between holding cash and buying bonds. The demand for money can vary based on factors such as income, interest rates, changes in technology, individual definition of money, technological changes, credit availability, etc.

An interest rate is the amount of interest charged over a certain period based on the amount of money lent, deposited or borrowed.

The demand for money is inversely proportional to the interest rate. At high interests rate, people will not want to hold cash, they will rather prefer to buy bonds. When interest rate is reduced, people will prefer to hold cash because they can't get enough return from the bond bought.