A decrease 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 larger fraction of their wealth in the form of money.

Question

Quizplus · Accepted Answer

A decrease in the interest rate would lower the opportunity cost of holding money instead of investing it. This would increase the demand for money as a store of value, and therefore people would choose to hold a larger fraction of their wealth in the form of money.

A Decrease in the Interest Rate Would Induce People to