Final answer:
A decrease in interest rates leads to an increase in the amount of money held as an asset because lower rates make holding money more attractive. In the financial market, a rise in the supply of funds leads to both an increase in the quantity of loans made and received and a decrease in interest rates.
Step-by-step explanation:
The question relates to the relationship between interest rates and the demand for money, specifically within the context of how changes in interest rates affect the transactions demand for money and the propensity to hold money as an asset. A decrease in the interest rate will not cause an increase or decrease in the transactions demand for money, as this is primarily driven by the level of economic activity. However, it will lead to an increase in the amount of money held as an asset, as lower interest rates make holding money more attractive compared to putting money in interest-bearing assets.
Regarding the changes in the financial market that would lead to an increase in the quantity of loans made and received, the correct answer is a rise in supply. When financial institutions have more funds to lend, the supply of loans increases, resulting in more loans being made and received.
Furthermore, a rise in supply in the financial market will also lead to a decline in interest rates. An increased supply of funds in the financial market puts downward pressure on interest rates as lenders compete to provide loans to borrowers.