A lower level of income causes the demand for money to ________ and the interest rate to ________,everything else held constant.
A) decrease; decrease
B) decrease; increase
C) increase; decrease
D) increase; increase

Question

Quizplus · Accepted Answer

A lower level of income reduces the demand for money because people have less money to hold or spend. With a decreased demand for money, the interest rate tends to decrease as well, assuming the money supply is constant.

A Lower Level of Income Causes the Demand for Money