Question

If the interest rate decreases

(A) or if the price level increases, then people will want to hold more money. (B) or if the price level decreases, then people will want to hold less money. (C) or if the price level increases, then people will want to hold less money. (D) or if the price level decreases, then people will want to hold more money

Answer 1

The correct answer is option A.

Step-by-step explanation:

When the interest rate decreases people will get less return on deposits. So they will prefer to hold money as a cash instead of depositing in banks. Similarly, if price level increases people will need more money to pay for transactions. So, the transactionary demand for money will increase. People will prefer to hold more money.