Question

When interest rates rise, the transactions demand for money usually select one:

a. decreases.
b. increases.
c. does not change.
d. decreases initially and then increases to the original position?

Answer 1

The answer is a. decreases. When the interest rate goes up, the transaction demand for money goes down or decreases. It goes the other way around when interest rates go down, the transaction demand for money is high or increases. It happens simply because a consumer can get more products at a lower interest rate, the tendency is to purchase more.