Question

The money demand curve is: O Upward sloping because the opportunity cost of holding money rises with the interest rate. O Downward sloping because the opportunity cost of holding money is inversely related to the interest rate. Downward sloping because the opportunity cost of holding money rises as the interest rate falls. O Downward sloping because the opportunity cost of holding money rises as the interest rate rises.

Answer 1

The money demand curve is downward sloping because opportunity cost of holding money rises as interest rate rises. The demand curve of money shows that people need less wealth in form of money when interest rate rises as they choose to invest in other bonds and investment which can pay them more interest rather than to keep it in form of money .So when interest rate rises the opportunity cost i.e value of next best alternative which is investing in bonds or share to earn higher interest rate is foregone . So the opportunity cost will rise when interest rate increases . The correct answer is part d