When interest rates increase and normal cash holdings are decreased and invested in securities,this is called:
A) consumption.
B) dishoarding.
C) reinvestment.
D) disintermediation.

Question

Quizplus · Accepted Answer

When interest rates increase, individuals may choose to decrease their cash holdings and invest in securities instead. This process is called dishoarding, as individuals are moving away from holding onto their cash and putting it into other assets. Choice A, consumption, refers to the purchase of goods and services for personal enjoyment, which is not related to interest rates. Choice C, reinvestment, refers to the process of taking earnings from an investment and putting them back into the same asset, which is not related to shifts in cash holdings. Choice D, disintermediation, refers to the process of savers bypassing traditional banking intermediaries (such as depositing cash into a bank account) and investing their funds directly in financial markets. While this can be related to increases in interest rates, it is not specifically related to the shift in cash holdings described in the question.

When Interest Rates Increase and Normal Cash Holdings Are Decreased