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Along a downward sloping money demand curve, as the interest rate falls the quantity of money demanded falls.
- a)True
- b)False
Correct answer is option 'B'. Can you explain this answer?
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Along a downward sloping money demand curve, as the interest rate fall...
- Along the MD curve as the interest rate falls, money demand increases.
- If the return on savings is low would rather keep the money for consumption.
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Along a downward sloping money demand curve, as the interest rate fall...
Money Demand Curve and Interest Rate
The statement provided in the question is False. Along a downward sloping money demand curve, as the interest rate falls, the quantity of money demanded actually increases rather than decreases.
Money Demand Curve Slope
The money demand curve typically slopes downward, indicating that as the interest rate decreases, individuals and businesses are more willing to hold onto money rather than invest it. This is because lower interest rates make it cheaper to borrow money, leading to an increase in spending and investment activities.
Relationship between Interest Rate and Money Demand
As the interest rate falls, the opportunity cost of holding onto money decreases, making it more attractive for individuals and businesses to hold onto money rather than investing it. This leads to an increase in the quantity of money demanded.
Impact of Interest Rate on Money Demand
- When the interest rate falls, the quantity of money demanded increases.
- This is because lower interest rates make it less costly to hold onto money.
- Individuals and businesses may prefer to keep more money on hand rather than investing it at lower interest rates.
In conclusion, along a downward sloping money demand curve, as the interest rate falls, the quantity of money demanded actually increases.
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Along a downward sloping money demand curve, as the interest rate falls the quantity of money demanded falls.a)Trueb)FalseCorrect answer is option 'B'. Can you explain this answer?
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