A central question in monetary theory is whether or to what extent the quantity of money demanded is affected by changes in ________.

Question

Quizplus · Accepted Answer

Changes in interest rates have a significant effect on the demand for money. When interest rates are high, the opportunity cost of holding money is high, and people prefer to hold less money, resulting in a decrease in the quantity of money demanded. Conversely, when interest rates are low, the opportunity cost of holding money is low, and people prefer to hold more money, leading to an increase in the quantity of money demanded. The price level, inflation, and income can also affect the demand for money indirectly, but their effect is not as strong as that of interest rates.

A Central Question in Monetary Theory Is Whether or to What