Question

When interest rates on treasury bills and other financial assets are low, the opportunity cost of holding money is _________, so the quantity of money demanded will be _________.

Answer 1

When interest rates on treasury bills and other financial assets are low, the opportunity cost of holding money is low so the quantity of money demanded will be high.

If interest rates go up, the demand for money will go down. Once it equals the new money supply, there will be no more difference between how much money people are holding and how much they want to keep, and the story is over. This is why (and how) a decline in the money supply raises interest rates.

As interest rates rise, the amount of money demanded decreases because the opportunity cost of holding money decreases. As interest rates rise, aggregate demand shifts to the left. The interest rate effect arises from the idea that higher price levels reduce the real value of household holdings.

Learn more about interest rates here: brainly.com/question/1115815

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