When the interest rate decreases, what happens to the opportunity cost of holding money and the quantity of money demanded?
A) The opportunity cost of holding money increases, so the quantity of money demanded increases.
B) The opportunity cost of holding money increases, so the quantity of money demanded decreases.
C) The opportunity cost of holding money decreases, so the quantity of money demanded increases.
D) The opportunity cost of holding money decreases, so the quantity of money demanded decreases.

Question

Quizplus · Accepted Answer

When the interest rate decreases, the opportunity cost of holding money decreases because it becomes cheaper to hold money instead of investing. As a result, the quantity of money demanded increases as people are inclined to hold more money due to lower opportunity cost.

When the Interest Rate Decreases, What Happens to the Opportunity