Suppose you go shopping for a gift for a friend and also find a sweater that you

Question

Suppose you go shopping for a gift for a friend and also find a sweater that you want for yourself. You pay cash for the gift and write a check for the sweater. Your purchases are made with money holdings represented by

A.

the transaction demand for money because you paid for the gift with cash.

B.

the transaction demand for money because you planned to buy the gift and the precautionary demand for money because you did not anticipate buying the sweater.

C.

your supply of money to the economy.

D.

the asset demand for money because you used money for both purchases.

Explanation / Answer

Ans

D

Because asset demand for money is total demand for money will equal quantities of money demanded for assets plus transaction.

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