The correct answer is Inverse Explanation & Key Takeaways: • Interest rates bear an inverse relationship with the demand for money. • Opportunity costs of holding money will be high when interest rates are high; • people are losing out on possible earnings that interest-bearing investments could have generated. • When interest rates are high, the opportunity cost of holding money increases because people can earn more by investing their money rather than keeping it as cash. • This leads to a lower demand for money for transactional and speculative purposes • When interest rates are low, the opportunity cost of holding money is low. • People prefer holding more money for transactions or precautionary needs because the benefit of investing it is minimal. • This leads to a higher demand for money. • The relationship can be visualized using the liquidity preference theory by John Maynard Keynes: • The demand for money (liquidity preference) decreases as the interest rate increases, and vice versa.