Final answer:
The demand for money decreases when interest rates go up because the opportunity cost of holding money increases. Conversely, when the amount of available loanable funds increases, it drives interest rates down, reducing the demand for money as people prefer to save or invest due to the lower opportunity cost.
Step-by-step explanation:
The factor that causes money demand to go down when it goes up is typically related to the interest rate. As we understand from the given information, an increase in the amount of available loanable funds indicates that more people or institutions are looking to lend money. This increased supply of loanable funds leads lenders to reduce the price of borrowing, which essentially means lowering the interest rates. Lower interest rates generally make holding money less attractive as the opportunity cost of holding cash instead of saving or investing is lower. Thus, as interest rates decrease, the quantity of money that people wish to hold also goes down.
This is akin to the principle in economics where an increase in the price of a good or service reduces the amount consumers will buy, ceteris paribus (assuming all other factors remain unchanged). Similarly, when income levels decrease, consumers can afford to buy less, all else being equal. Applying this to the demand for money, when interest rates (the price of borrowing money) increase, the demand for money decreases as it costs more to borrow or hold money as savings yield higher returns.