If the interest rate goes up, the demand for money will __________.

The correct answer is fall.Key Points

• Interest Rate:-
  • When the interest rate increases, borrowing becomes more expensive, and people tend to save more and borrow less.
  • So, the demand for money falls.
  • The higher interest rate increases the cost of borrowing, which in turn discourages people from taking loans and investing.
  • Hence, the demand for money decreases.
  • When the interest rate rises, people can earn more by saving their money in the bank.
  • Hence, they tend to save more, and the demand for money falls.
  • The rise in interest rate reduces the purchasing power of consumers.
  • Thus, they tend to cut back on their spending, leading to a fall in demand for money.
  • The demand for money may also depend on factors such as inflation, economic growth, and availability of credit.

Additional Information

• The demand for money may initially rise due to the expectation of higher returns, but as interest rates increase, borrowing becomes more expensive, leading to a fall in demand.
• The demand for money does not rise when the interest rate increases.
  • It falls because borrowing becomes more expensive.
• The demand for money may remain the same only if the increase in interest rate is offset by other factors such as inflation or economic growth.
• The rise in interest rate leads to a fall in demand for money due to the increased cost of borrowing and reduced purchasing power of consumers.