How does an increase in the real interest rate typically affect the demand for money, assuming all other factors remain constant?

When the real interest rate increases, people tend to want to hold less money because it becomes more expensive to keep it. This is because higher interest rates mean that if you have money sitting in your wallet, you miss out on earning interest if you had put it in a bank or invested it. For example, if a bank offers a higher interest rate, people are more likely to deposit their money there instead of keeping it cash. As a result, the overall demand for money decreases since people prefer to earn interest on their savings rather than hold cash that doesn’t earn anything. Therefore, when interest rates rise, the desire to hold onto cash typically falls, leading to a lower demand for money.