Which of the following factors does not affect the demand for money?
a. interest rates
c. level of income
b. price levels
d. government spending

d. government spending

Explanation:

Government spending is not one of the factors affecting the demand for money.

The fundamental factors affecting the demand for money are those proposed by the Monetarist and the Keynesian schools of thought.

The Monetarist

According to the Monetarist, the factors affecting the demand for money are:

1. The level of income or size of individual wealth. the higher the  individual wealth, all things being equal, the higher the demand for money.

2. Interest Rate: The cost of holding money is the interest rate that is to be foregone, so, the higher the interest rate, the lower the demand for money as individuals will prefer to invest in bonds that provides interest instead of hold cash that is always interest free.

3. Preferences: Individual preference for liquid assets plays a significant roles in their demand for money. that is it depends on the importance they attach to money.    

The Keynesians

The Keynesians believe that individuals demand for money for three motives.

1. Transactionary motives: this is the demand for money to carry out daily transactions, so the size of money demanded will depend on the size of the transactions intended.

2. Precautionary Motives: This is when money is demanded for unforeseen contingencies.

3. Speculative motives: Speculative activities in the bond market so as to cash in on favorable bond market situation will also determine the demand for money.

From the above, it can be seen that non of the two dominant theorists sees government spending as a factor affecting the demand for money.

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