When the interest rate is increased, the demand for money ______________.

Comes down

When the interest rate is increased, the demand for money goes down. This is because money is a relatively liquid asset, meaning that it can be easily converted into other assets, such as bonds. When the interest rate on bonds increases, bonds become more attractive to investors, and they will demand more bonds. This will cause the price of bonds to rise, and the price of money (which is the same as the inverse of the interest rate) to fall. As a result, the demand for money will decrease.

When the interest rate is very high everyone expects it to fall in future and hence anticipates capital gains from bond-holding. Hence people convert their money into bonds. Thus, speculative demand for money is low. When interest rate comes down, more and more people expect it to rise in the future and anticipate capital loss. Thus they convert their bonds into money giving rise to a high speculative demand for money. Hence speculative demand for money is inversely related to the rate of interest