Suppose you hold $5, 000 in cash when the interest rate on bonds is 4 percent.Other things equal, as the bond interest rate declines to 3 percent, you will want to hold more money because the opportunity cost of holding money has decreased.

Question

Quizplus · Accepted Answer

When the interest rate on bonds decreases, the opportunity cost of holding money (cash) decreases, making it more attractive to hold more money instead of investing in bonds.

Suppose You Hold $5, 000 in Cash When the Interest