The theory of portfolio choice indicates that higher interest rates make money ________ desirable,and the demand for real money balances ________.
A)less;falls
B)more;falls
C)less;rises
D)more;rises

Question

Quizplus · Accepted Answer

According to the theory of portfolio choice, when interest rates rise, the opportunity cost of holding money balances increases. This makes money less desirable as an asset compared to other interest-bearing assets, such as bonds. As a result, the demand for real money balances falls.

The Theory of Portfolio Choice Indicates That Higher Interest Rates