When the interest rate falls,
A) the opportunity cost of holding money rises.
B) people shift out of holding interest-yielding bonds into holding money.
C) the quantity of money people will hold decreases.
D) investment spending decreases.
E) real GDP will decrease.

Question

Quizplus · Accepted Answer

When interest rates fall, the return on interest-yielding investments such as bonds decreases, leading people to shift their funds out of those investments and into holding money instead. This increases the demand for money, which leads to a decrease in interest rates.

When the Interest Rate Falls