A decrease in the interest rate
A) decreases the opportunity cost of holding money.
B) can increase or decrease the opportunity cost of holding money.
C) increases the opportunity cost of holding money.
D) None of the above answers is correct.

Question

Quizplus · Accepted Answer

A decrease in the interest rate decreases the opportunity cost of holding money because the return on holding money (in the form of interest) is lower. So, people may choose to hold more money instead of investing it due to the lower opportunity cost.

A Decrease in the Interest Rate