Other things being equal, the quantity of money that people wish to hold can be expected to:
A) increase as the interest rate increases.
B) increase as the interest rate decreases.
C) decrease as real GDP increases.
D) decrease as the fixed interest deposits decrease.

Question

Quizplus · Accepted Answer

The demand for money varies inversely with the opportunity cost of holding money, which is the interest rate. Therefore, as the interest rate decreases, the quantity of money people wish to hold increases. The other options are incorrect because there is no direct relationship between the interest rate and the quantity of money demanded, or between real GDP and the demand for money. The last option is also incorrect because fixed interest deposits are just one of the many assets people have available; the demand for money is affected by a wide array of factors beyond just the interest rates of one type of deposit.

Other Things Being Equal, the Quantity of Money That People