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, which discourages firms from borrowing money. Therefore, firms demand less money when the interest rate increases, so the quantity of money demanded decreases. This is consistent with the law of demand, which states that the quantity demanded of a good or service decreases as the price of that good or service increases.

Firms Often Seek to Borrow Money to Expand Their Capital