Firms often seek to borrow money to expand their capital stock, and the price they pay for that money is the interest rate.What happens to quantity of money demanded if the interest rate increases?

Question

Quizplus · Accepted Answer

When the interest rate increases, the cost of borrowing money increases, resulting in a decrease in the quantity of money demanded. This is because firms and individuals will reduce their spending on investments and other economic activities that require borrowing because it becomes more expensive to pay back loans.

Firms Often Seek to Borrow Money to Expand Their Capital