An increase in the interest rates will
A)cause people to hold less money, which, in turn, means that the velocity of money increases.
B)cause people to hold less money, which, in turn, means that the velocity of money decreases.
C)cause people to hold more money, which, in turn, means that the velocity of money increases.
D)cause people to hold more money, which, in turn, means that the velocity of money decreases.

Question

An increase in the interest rates will
A)​cause people to hold less money, which, in turn, means that the velocity of money increases.
B)​cause people to hold less money, which, in turn, means that the velocity of money decreases.
C)​cause people to hold more money, which, in turn, means that the velocity of money increases.
D)​cause people to hold more money, which, in turn, means that the velocity of money decreases.

Quizplus · Accepted Answer

When interest rates increase, holding money becomes more costly because individuals miss out on the higher interest they could earn by depositing their money. As a result, people tend to hold less money and circulate it more quickly, leading to an increase in the velocity of money.

An Increase in the Interest Rates Will