Other things constant, an increase in the interest rate reduces the size of money balances portfolio managers want to hold.

Name: Other things constant, an increase in the interest rate reduces the size of money balances portfolio managers want to hold.
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Question

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Higher interest rates increase the opportunity cost of holding money (since holding money yields no interest), leading portfolio managers to reduce their money balances in favor of interest-bearing assets.

Other Things Constant, an Increase in the Interest Rate Reduces