Question

When households decide to hold more money, a. interest rates fall and investment increases. b. interest rates rise and investment increases. c. interest rates rise and investment decreases. d. interest rates fall and investment decreases?

Answer 1

The correct option is C. 
When households decide to hold more money, the demand for money will increase and this will lead to an increase in the interest rate. The increase in the interest rate will discourages investors from borrowing money and this in turn will leads to a decrease in investment rate.