Which of the following are correct?

a. As the level of output and income decreases in the economy, the level of transactions decreases and the demand for money decreases. Therefore, a positive relationship exists between the level of output and income and the demand for money in the economy.

b. A negative relationship exists between the interest rate and the passive demand for money.

c. The higher the interest rate, the higher is the opportunity cost of holding money and therefore financial participants will be less inclined to hold money.

d. The demand for passive balances is related to the choice between keeping money and bonds. Money is the most liquid form in which wealth can be kept but earns no interest whereas bonds provide a return but are less liquid.

1. a, b, c and d

2. Only b, c and d

3. Only a, c and d

4. Only a, b and c

5. Only a, b and d