The money demand curve slopes
A)downward because the cost of holding money decreases as the interest rate decreases
B)downward because the cost of holding money increases as the interest rate decreases
C)upward because people demand more money as GDP increases
D)upward because people demand more money as GDP decreases
E)downward because people demand more money as the price level increases

Question

Quizplus · Accepted Answer

The money demand curve slopes downward because as the interest rate decreases, the opportunity cost of holding money (instead of investing it or earning interest on it) decreases. Therefore, people demand more money at lower interest rates, leading to a downward sloping curve.

The Money Demand Curve Slopes