All other things unchanged, we expect that an increase in interest rates will tend to
A) increase the quantity of money demanded and increase velocity.
B) increase the quantity of money demanded and reduce velocity.
C) reduce the quantity of money demanded and increase velocity.
D) reduce the quantity of money demanded and reduce velocity.

Question

Quizplus · Accepted Answer

An increase in interest rates typically reduces the quantity of money demanded because people prefer to hold less cash and more interest-bearing assets. This also tends to increase velocity, as money circulates faster in the economy.

All Other Things Unchanged, We Expect That an Increase in Interest