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.

Question

Quizplus · Accepted Answer

An increase in the interest rate causes a movement up along the money demand curve. This is because higher interest rates lead to a lower quantity of money demanded, as the opportunity cost of holding money increases. Thus, people are willing to hold less money at higher interest rates, leading to a movement up along the money demand curve.

An Increase in the Interest Rate Causes