The demand for money curve shows that there is an inverse relationship between the quantity of money demanded and the:
A) quantity of money supplied.
B) gross domestic product (GDP).
C) price level.
D) interest rate.

Question

Quizplus · Accepted Answer

The demand for money curve shows an inverse relationship between the quantity of money demanded and the interest rate. As the interest rate increases, the opportunity cost of holding money increases, so people demand less money. Conversely, as the interest rate decreases, the opportunity cost of holding money decreases, so people demand more money. The demand for money curve is downward sloping because of this inverse relationship with the interest rate.

The Demand for Money Curve Shows That There Is an Inverse