Multiple choice

According to a monetary theory demand for cash for transactions is inversely related to the rate of interest. Who propounded this theory?

  1. Keynes

  2. Marshall

  3. Malthus

  4. Baumol -Tobin
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The Baumol-Tobin model (1950s) explains the transaction demand for money and its inverse relationship with interest rates. When interest rates rise, holding cash becomes more expensive (opportunity cost), so people hold less cash for transactions. Keynes discussed money demand but didn't formalize this specific inventory-theoretic approach; Marshall focused on Cambridge cash-balance theory.

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