Answer to Question #134865 in Macroeconomics for December

Question

Which of the following statements is incorrect regarding the quantity of money?
[1] The quantity of money is determined by the interaction of the demand for money and interest
rate.
[2] If the interest rates are high, the quantity of money demanded will tend to low.
[3] If interest rates are low, the quantity of money demanded will tend to be high.
[4] There is a positive relationship between interest rates and the quantity of money demanded.

Answer 1

Interest levels are tools for monetary policy. The quantity theory of money dictates that the quantity of money has an inverse relationship with the interest rates which means that as interest rates increase the quantity of money demanded will decrease and as Interest rates decrease the quantity of money demanded will be high. Therefore, the incorrect statement is statement four because there is no positive relationship between interest rate and the quantity of money demanded the relationship is inverse.