How does an increase in interest rates typically affect the demand for money in an economy?

When interest rates increase, the cost of borrowing money also goes up. This means people and businesses are less likely to take out loans because they will have to pay back more in interest. As a result, the demand for money decreases because fewer people want to hold onto cash when they can earn more by saving it in a bank or investing it. For example, if someone has a choice between keeping their money in a savings account that earns a high interest rate or spending it now, they might choose to save instead. Overall, higher interest rates make saving more attractive and spending less appealing, leading to a lower demand for money in the economy.