Other things being equal, the quantity of money that people wish to hold in currency and their checking accounts can be expected to:
A) increase as the interest rate increases.
B) decrease as the interest rate increases.
C) decrease as real GDP increases.
D) none of the above.

Question

Quizplus · Accepted Answer

When the interest rate increases, the opportunity cost of holding money increases as well, because people could earn a higher return by holding their money in interest-bearing accounts or investing it. Therefore, people tend to decrease the amount of money they hold in currency and checking accounts as the interest rate increases.

Other Things Being Equal, the Quantity of Money That People