If the interest rate goes up, the demand for money will ______.
Show answer & explanation
Correct answer: D
Explanation
The correct answer is Option 4 i.e. fall
If the interest rate goes up, the demand for money will likely decrease. This is because higher interest rates make borrowing more expensive, leading to a decrease in the demand for loans and credit.
Additionally, higher interest rates provide greater returns on savings and investments, incentivizing people to save more and spend less. As a result, the overall demand for money, which includes both the demand for currency and the demand for money held in interest-bearing assets, tends to decrease when interest rates rise.