When the interest rate decrease, the opportunity cost of holding money
A)decreases, so the quantity of money demanded decreases.
B)decreases, so the quantity of money demanded increases.
C)increases, so the quantity of money demanded decreases.
D)increases, so the quantity of money demanded increases.

Question

Quizplus · Accepted Answer

When the interest rate decreases, the opportunity cost of holding money (i.e., the foregone interest earnings) also decreases, making it less costly for individuals to hold onto money rather than investing it. As a result, the quantity of money demanded increases because people are more willing to hold cash or keep money in low-interest accounts.

When the Interest Rate Decrease, the Opportunity Cost of Holding