When households decide to hold more money,
A)interest rates fall and investment decreases.
B)interest rates fall and investment increases.
C)interest rates rise and investment increases.
D)interest rates rise and investment decreases.

Question

Quizplus · Accepted Answer

When households decide to hold more money, the demand for money increases which leads to a decrease in the supply of lendable funds. This causes the interest rates to rise, making it more expensive to borrow for investment purposes. As a result, investment decreases.

When Households Decide to Hold More Money