Both the portfolio choice and Keynes’s theories of thedemand for money suggest that as the relative expectedreturn on money falls, demand for it will fall. Whydoes the portfolio choice approach predict that moneydemand is affected by changes in interest rates? Whydid Keynes think that money demand is affected bychanges in interest rates?
Both the portfolio choice and Keynes’s theories of thedemand for money suggest that as the relative expectedreturn on money falls, demand for it will fall. Whydoes the portfolio choice approach predict that moneydemand is affected by changes in interest rates? Whydid Keynes think that money demand is affected bychanges in interest rates?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Both the portfolio choice and Keynes’s theories of the
return on money falls, demand for it will fall. Why
does the portfolio choice approach predict that money
demand is affected by changes in interest rates? Why
did Keynes think that money demand is affected by
changes in interest rates?
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