Answer given is d. kindly explain

Nidhi taparia

Hi. Based on my understanding of monetary economics, the correct answer is not D but C. Let me explain the same. Demand for money means how much do people want to hold their total stock of wealth or income as money or cash balances in hand. This depends on - 1. Wealth - While Friedman has not explicitly stated whether the relationship between total wealth and demand for money is direct or inverse, total wealth has been stated as one of the key determinants of demand for money. 2. Nominal yield on alternative assets - Cash balances or money is one kind of asset in which people can hold their income. When they are holding cash balances, the yield on other assets is the opportunity cost of doing that. If nominal yield on them rises, people will demand lesser cash balances such that they can purchase the higher yield assets. 3. Real interest rate - When interest rate rises, holding money as cash balances or taking credit from the market becomes costlier. Hence demand for money falls. Coming to inflation rate, as a matter of fact it is expected rate of inflation or inflation expectations that determines demand for money. If people expect inflation or prices to rise, their demand for money will fall today. Because then they are aware that the purchasing power of their money will fall in the future.