The money demand function is negatively sloped because the
A) quantity of money demanded rises as the transactions demand falls.
B) quantity of money demanded rises as nominal income falls.
C) quantity of money demanded rises as the interest rate falls.
D) the speculative demand for money rises as the interest rate rises.
E) interest rate rises as the general price level falls.

Question

Quizplus · Accepted Answer

The quantity of money demanded rises as the interest rate falls due to the opportunity cost of holding money. When interest rates are high, individuals are more willing to hold their savings in interest-bearing accounts or invest in other assets, while when interest rates are low, individuals have less opportunity cost to hold onto their money and therefore demand more money.

The Money Demand Function Is Negatively Sloped Because the