Suppose a given country experienced low and stable inflation rates for quite some time, but then inflation picked up and over the past decade has been relatively high and quite unpredictable. Explain how this new inflationary environment would affect the demand for money according to the portfolio theories of money demand.

A.

According to the portfolio theories of money demand, the demand for money does not change because the precautionary motive for money demand will cause people to hold the same amount of money.

B.

According to the portfolio theories of money demand, the demand for money decreases because individuals will prefer to hold more stable assets and less money.

C.

According to the portfolio theories of money demand, since money demand is positively related to interest rates, high inflation will increase the demand for money.

D.

There is not enough information provided to answer the question.