Asked Nov 20, 2019

 How would each of the following affect the demand for money?

  1. a tax on bonds held by individuals
  2. a forecast by the Central bank that interest rates will rise sharply in the next quarter

Expert Answer

Step 1

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Demand for money refers to the desire of the people to hold financial assets in the form of money. Such as, currency, bank deposits and so on rather to investments.

Step 2

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A tax imposed on the bonds held by individuals will reduce the demand for bonds and people will desire to hold money as an alternative to bonds.


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