A higher level of income causes the demand for money to ________ and the interest rate to ________.
A) decrease; decrease
B) decrease; increase
C) increase; decrease
D) increase; increase

Question

Quizplus · Accepted Answer

A higher level of income increases the demand for money as people have more income to spend and thus hold more money for transactions. This increased demand for money can lead to higher interest rates as the supply of money becomes relatively scarcer.

A Higher Level of Income Causes the Demand for Money