The demand for money
A)is unrelated to the interest rate
B)is directly related to the interest rate
C)is inversely related to the interest rate
D)is inversely related to the volume of transactions
E)is largely independent of the volume of transactions

Question

Quizplus · Accepted Answer

The demand for money is inversely related to the interest rate, meaning that as interest rates increase, demand for money decreases and vice versa. This is because individuals and businesses are more likely to hold onto money when they can earn a higher return on it through interest, while they are less likely to hold onto it when interest rates are low. The demand for money is also affected by other factors, such as the level of economic activity and the availability of credit, but the interest rate is a key determinant.

The Demand for Money