How will a decrease in the interest rate affect the quantity of money people want to hold?
A) The quantity of money people want to hold will increase.
B) The quantity of money people want to hold will decrease.
C) The quantity of money people want to hold will NOT be affected.
D) The quantity of money people want to hold will be constant.

Question

How will a decrease in the interest rate affect the quantity of money people want to hold?  
A) The quantity of money people want to hold will increase. 
B) The quantity of money people want to hold will decrease. 
C) The quantity of money people want to hold will NOT be affected. 
D) The quantity of money people want to hold will be constant.

Quizplus · Accepted Answer

When interest rates decrease, the opportunity cost of holding money (instead of investing it) decreases, making people more willing to hold larger quantities of money for transactions or precautionary reasons.

How Will a Decrease in the Interest Rate Affect the Quantity