How does an increase in the inflation rate typically affect the demand for money, considering the implications of monetary policy on interest rates?

When inflation increases, it means that prices for goods and services are rising. This can lead to people needing more money to buy the same things they could before, which usually increases the demand for money. However, central banks often respond to rising inflation by increasing interest rates to control it. Higher interest rates make borrowing more expensive and saving more attractive, which can reduce the demand for money because people might prefer to hold onto their savings rather than spend. For example, if someone knows that their savings will earn more interest because of higher rates, they might choose to save rather than spend, reducing the overall demand for money in the economy.