An increase in the interest rate
A)increases the demand for money.
B)increases the quantity of money demanded.
C)decreases the demand for money.
D)decreases the quantity of money demanded.

Question

Quizplus · Accepted Answer

An increase in the interest rate makes holding money less attractive because the opportunity cost of holding money (foregone interest) is higher. Therefore, people will want to hold less money, decreasing the quantity of money demanded.

An Increase in the Interest Rate