An increase in the interest rate causes
A)a movement up along the money demand curve.
B)a movement down along the money demand curve.
C)the money demand curve to shift to the left.
D)the money demand curve to shift to the right.
E)the money demand curve to become steeper.

Question

Quizplus · Accepted Answer

An increase in the interest rate leads to a higher opportunity cost of holding money, as the return on other investments increases. As a result, people demand less money at any given interest rate, and this causes a movement up along the money demand curve. Therefore, choice A is the best answer.

An Increase in the Interest Rate Causes