If the interest rate rises,people hold
A)less money because its opportunity cost has increased
B)more money because its opportunity cost has increased
C)less money because its opportunity cost has declined
D)more money because its opportunity cost has declined
E)the same amount of money

Question

Quizplus · Accepted Answer

When interest rates rise, the opportunity cost of holding money increases because the potential return on holding money in a savings account or investment also increases. Therefore, people are incentivized to hold less money and instead invest it or save it to earn a higher return.

If the Interest Rate Rises,people Hold