The quantity of money demanded is positively related to the interest rate.

Question

Quizplus · Accepted Answer

The quantity of money demanded is actually negatively related to the interest rate, according to the theory of the demand for money. As the interest rate increases, the opportunity cost of holding money (which earns no interest) increases, leading people to hold less money and demand more interest-bearing assets. Conversely, as the interest rate decreases, the opportunity cost of holding money decreases, leading people to hold more money and demand fewer interest-bearing assets.

The Quantity of Money Demanded Is Positively Related to the Interest