Question

If investors begin selling all their stocks and increasing their money holdings, we would expect to see

a decrease in the demand for money.

an increase in the demand for money.

an increase in the quantity of money demanded.

a decrease in the quantity demanded of money.

no change in the demand for money.

Answer 1

To sell your stock, you need to find someone to buy it from you who already has money, right? After they give you money and take your stock in exchange, the same amount of money is in circulation, simply being held by different parties. At first blush, it seems like there is no change in the demand for money.

Answer 2

It turned out to be an increase in demand for money, but thank you!

Answer 3

Hmm. I fail to see why that should necessarily be the case, and it seems like any answer could be impacted by whether the sales were generally at a large profit, a large loss, or neutral...if I walk over to Morgan Stanley with $100,000 in cash, buy some stocks (giving some other party $100,000 to put into circulation), and a year later sell them at 50 cents on the dollar, my net demand for money has diminished!

Answer 4

Well, you know what they say about economists — the real world is a special case.

Answer 5

I find the answers to be affected by whatever scenario I hadn't been thinking of at the time.. most of these are pretty much a gamble