If the interest rate rises from 1 percent to 3 percent, the ________ decreases and the opportunity cost of holding money ________.
A) quantity of money demanded; rises
B) quantity of money demanded; falls
C) quantity of money supplied; rises
D) quantity of money supplied; falls
E) demand for money; rises

Question

Quizplus · Accepted Answer

When interest rates rise, the quantity of money demanded decreases because people prefer to hold less cash and more interest-bearing assets. The opportunity cost of holding money rises as the potential earnings from interest increase.

If the Interest Rate Rises from 1 Percent to 3