The demand for money is__________ related to the nominal interest rate.

Question

Quizplus · Accepted Answer

According to the theory of liquidity preference, the demand for money is negatively related to the nominal interest rate. This means that as the nominal interest rate increases, the demand for money decreases, and vice versa. This is because people prefer to hold their assets in the form of money when the interest rates are low, and when interest rates are high, they prefer to invest their money to earn higher returns.

The Demand for Money Is__________ Related to the Nominal Interest