Other things constant,if the interest rate rises,people prefer to hold:
A)less money because the opportunity cost of holding money has increased.
B)more money because the opportunity cost of holding money has increased.
C)less money because the opportunity cost of holding money has declined.
D)more money because the opportunity cost of holding money has declined.
E)the same amount of money because the opportunity cost of holding money is zero.

Question

Quizplus · Accepted Answer

When the interest rate rises, the opportunity cost of holding money increases as the cost of forgoing interest on money held increases. Therefore, people prefer to hold less money and invest it in interest-bearing assets.

Other Things Constant,if the Interest Rate Rises,people Prefer to Hold