The demand curve for money shows the quantity of money demanded at each interest rate. Its downward slope expresses the negative relationship between the amount of money demanded and the interest rate. Its downward slope expresses the negative relationship between the quantity of money demanded and the interest rate. The relationship between interest rates and the amount of money demanded is an application of the law of demand. The money demand curve shows the relationship between the amount of money people want to hold and the interest rate. The curve slopes downward because there is an inverse relationship between the two variables: When the money demand curve shifts to the right due to an increase in money demand, the equilibrium interest rate will be higher.
The demand curve for money is downward sloping because the quantity demanded has an inverse relationship with the interest rate. When interest rates are high, people want to hold more of their wealth in investments like bonds and less money in cash or demand deposits like SB and Current accounts. When interest rates are low, people want to hold more money.
Conclusion:
Money demand refers to the overall demand for holding cash in an economy. The demand curve for money illustrates the quantity demanded at a given interest rate. The curve slopes downward because there is an inverse relationship between the two variables like higher interest rates and lower interest rates.
The interest rate represents the opportunity cost of holding money, so when interest rates are low, people are less inclined to put their money in interest-bearing deposits and are more likely to hold onto cash waiting for higher return investments shortly.
When interest rates change, it causes a movement along the existing money demand curve, reflecting a change in the quantity of money demanded at that specific interest rate.
