The asset demand for money is downward sloping because:
A)the opportunity cost of holding money increases as the interest rate rises.
B)it is more attractive to hold money at high interest rates than at low interest rates.
C)bond prices rise as interest rates rise.
D)the opportunity cost of holding money declines as the interest rate rises.

Question

Quizplus · Accepted Answer

The opportunity cost of holding money is the interest rate that could have been earned by holding assets that generate interest, such as bonds. As interest rates rise, the opportunity cost of holding money increases, as the potential to earn higher returns from interest-bearing assets also increases. Therefore, the demand for money decreases, resulting in a downward sloping demand curve.

The Asset Demand for Money Is Downward Sloping Because