Which of the following events should cause the average cash balance that minimizes total carrying costs to increase?
A) A reduction in the opportunity cost of holding cash
B) A reduction in total income
C) A reduction in the cost of a deposit transaction
D) An increase in the opportunity cost of holding cash
E) A simultaneous and proportional increase in the cost of a deposit transaction and the opportunity cost of holding cash

Question

Quizplus · Accepted Answer

A reduction in the opportunity cost of holding cash makes it cheaper to hold more cash, thus increasing the average cash balance that minimizes total carrying costs.

Which of the Following Events Should Cause the Average Cash