Using the interest rate as a measure of the opportunity cost of holding money, the demand for money curve

Question

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As the interest rate increases, it becomes more costly to hold money and individuals and firms will want to hold less of it. Therefore, the demand for money curve slopes downward with respect to the rate of interest. This relationship between the interest rate and demand for money is known as the liquidity preference theory. The demand for money curve is not affected by the price level because it only considers the opportunity cost of holding money in terms of foregone interest earnings, not changes in purchasing power due to inflation. The demand for money curve is not vertical because changes in the interest rate do affect the quantity of money demanded.

Using the Interest Rate as a Measure of the Opportunity