When does the opportunity cost of holding money decrease or increase, and how does people's desire to hold money change?
A) The opportunity cost of holding money decreases when the interest rate increases, so people desire to hold more money.
B) The opportunity cost of holding money decreases when the interest rate increases, so people desire to hold less money.
C) The opportunity cost of holding money increases when the interest rate increases, so people desire to hold more money.
D) The opportunity cost of holding money increases when the interest rate increases, so people desire to hold less money.

Question

Quizplus · Accepted Answer

According to the opportunity cost of holding money, when the interest rate increases, the cost of holding money increases, as people are foregoing higher interest rate earnings by holding onto their money. Therefore, people may choose to hold less money in order to invest or save it elsewhere. This means that the desire to hold money decreases as the opportunity cost of holding money increases.

When Does the Opportunity Cost of Holding Money Decrease or Increase