If the interest rate falls,the opportunity cost of holding money __________ and the quantity demanded of money __________.

Question

Quizplus · Accepted Answer

When the interest rate falls, the opportunity cost of holding money falls because the return on other assets, such as bonds, decreases. As a result, the quantity demanded of money increases because people prefer to hold more money relative to other assets. Therefore, the correct answer is C, where the opportunity cost of holding money falls and the quantity demanded of money rises.

If the Interest Rate Falls,the Opportunity Cost of Holding Money