Which of the following describes how the opportunity cost of holding money affects people's desire to hold money?
A) The opportunity cost of holding money decreases when the interest rate increases, therefore people desire to hold more money.
B) The opportunity cost of holding money decreases when the interest rate increases, therefore people desire to hold less money.
C) The opportunity cost of holding money increases when the interest rate increases, therefore people desire to hold more money.
D) The opportunity cost of holding money increases when the interest rate increases, therefore people desire to hold less money.

Question

Which of the following describes how the opportunity cost of holding money affects people's desire to hold money?  
A) The opportunity cost of holding money decreases when the interest rate increases, therefore people desire to hold more money. 
B) The opportunity cost of holding money decreases when the interest rate increases, therefore people desire to hold less money. 
C) The opportunity cost of holding money increases when the interest rate increases, therefore people desire to hold more money. 
D) The opportunity cost of holding money increases when the interest rate increases, therefore people desire to hold less money.

Quizplus · Accepted Answer

The opportunity cost of holding money refers to the potential returns that could be earned if the money was invested. When interest rates increase, the potential returns from investments increase as well, making the opportunity cost of holding money higher. Therefore, people have a greater incentive to invest their money rather than hold onto it, resulting in a decreased desire to hold money.

Which of the Following Describes How the Opportunity Cost of Holding