Higher the interest rate, the _____ the opportunity cost of holding money, and _____ the quantity demanded of money.

Question

Quizplus · Accepted Answer

When interest rates are higher, the opportunity cost of holding money (instead of investing it or saving it where it could earn interest) is also higher. This typically leads to a lower quantity of money demanded because people prefer to hold less cash and more interest-earning assets.

Higher the Interest Rate, the _____ the Opportunity Cost of Holding