An increase in the interest rate would induce people to
A) sell shares of stock and buy bonds, but would have no effect on their desire to hold money.
B) get rid of all their money and buy stocks with it.
C) sell their least liquid assets and hold more money in case interest rates go up again.
D) hold a smaller fraction of their wealth in the form of money.

Question

Quizplus · Accepted Answer

An increase in the interest rate would make holding money less attractive since it means higher opportunity cost. Therefore, people would likely choose to hold a smaller fraction of their wealth in the form of money and invest in other assets, such as bonds or stocks, that offer higher returns.

An Increase in the Interest Rate Would Induce People to