People choose to hold a smaller quantity of money if
A)the interest rate rises, which causes the opportunity cost of holding money to rise.
B)the interest rate falls, which causes the opportunity cost of holding money to rise.
C)the interest rate rises, which causes the opportunity cost of holding money to fall.
D)the interest rate falls, which causes the opportunity cost of holding money to fall.

Question

Quizplus · Accepted Answer

When interest rates rise, the opportunity cost of holding money increases because alternative investments offer a higher return. Therefore, people tend to hold a smaller quantity of money to invest in assets that offer higher interest rates.

People Choose to Hold a Smaller Quantity of Money If