The cost of holding money balances increases when

Question

Quizplus · Accepted Answer

When the money interest rate increases, the cost of holding money balances increases, as individuals forego the opportunity to earn interest by holding onto cash instead of investing it. The other choices cited are incorrect; when the purchasing power of money rises, the cost of holding money balances decreases as individuals can buy more with their money; when the price of goods and services falls, the cost of holding money balances decreases as individuals can buy more with their money; and when consumer income expands, it may or may not impact the cost of holding money balances, as it depends on factors such as inflation and interest rates.

The Cost of Holding Money Balances Increases When