There is an inverse relationship between the interest rate and the quantity of money demanded.

Question

Quizplus · Accepted Answer

When the interest rate increases, the opportunity cost of holding money also increases. As a result, people tend to demand less money and invest more in bonds, stocks, or other financial instruments that provide higher returns. Conversely, when the interest rate decreases, the cost of holding money decreases, and people tend to demand more money, reducing their investment demand. Therefore, there is an inverse relationship between the interest rate and the quantity of money demanded.

There Is an Inverse Relationship Between the Interest Rate and the Quantity