The money demand curve has a negative slope because
A)lower interest rates cause households and firms to switch from money to financial assets.
B)lower interest rates cause households and firms to switch from financial assets to money.
C)lower interest rates cause households and firms to switch from money to stocks.
D)lower interest rates cause households and firms to switch from money to bonds.
E)lower interest rates cause households and firms to take more risks.

Question

Quizplus · Accepted Answer

Lower interest rates reduce the opportunity cost of holding money instead of financial assets, so households and firms shift their portfolios towards money, causing the money demand curve to shift to the right. Therefore, the money demand curve has a negative slope.

The Money Demand Curve Has a Negative Slope Because