An increase in the ________ would induce people to hold a smaller fraction of their wealth in the form of money.
A)unemployment rate
B)inflation rate
C)money supply
D)interest rate

Question

Quizplus · Accepted Answer

An increase in the interest rate would make holding money relatively less attractive compared to other assets (e.g. bonds), leading people to hold a smaller fraction of their wealth in the form of money. This is because the opportunity cost of holding money increases with higher interest rates, as the foregone interest that could have been earned on other assets becomes greater. In contrast, increases in the unemployment rate, inflation rate, or money supply do not necessarily make holding money relatively less attractive.

An Increase in the ________ Would Induce People to Hold