The opportunity cost of holding money
A)decreases when the interest rate increases, so people desire to hold more of it.
B)decreases when the interest rate increases, so people desire to hold less of it.
C)increases when the interest rate increases, so people desire to hold more of it.
D)increases when the interest rate increases, so people desire to hold less of it.

Question

Quizplus · Accepted Answer

Opportunity cost refers to the benefits that could have been obtained by choosing an alternative option. Holding money means that it cannot be invested in other options that may provide a higher return, such as bonds or stocks. The interest rate is the reward for investing money, and when it increases, the opportunity cost of holding money also increases. Therefore, people desire to hold less money and invest more, leading to a decrease in the demand for money. Choice D correctly reflects this relationship.

The Opportunity Cost of Holding Money