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An economy begins in long-run equilibrium, and then a change in government regulations allows banks to start paying interest on checking accounts. Recall that the money supply is the sum of currency and demand deposits, including checking accounts, so this regulatory change makes holding money more attractive. Question 1: How does this change affect the demand for money

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Answer: Demand for money will Increase

Explanation:

As banks are paying interest on checking accounts, these accounts will become more attractive, people will want to take advantage of this and so they will demand more money.

This will enable them to deposit in checking accounts where they can earn the interest the banks are paying.

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