When interest rates are higher:
A)the opportunity cost of holding monetary assets is higher, and the quantity of money demanded, but not the demand for money, is lower.
B)the opportunity cost of holding monetary assets is higher, and the demand for money increases.
C)the opportunity cost of holding monetary assets is lower, and the quantity of money demanded, but not the demand for money, is greater.
D)the opportunity cost of holding monetary assets is lower, and the demand for money increases.

Question

When interest rates are higher:
A)​the opportunity cost of holding monetary assets is higher, and the quantity of money demanded, but not the demand for money, is lower.
B)​the opportunity cost of holding monetary assets is higher, and the demand for money increases.
C)​the opportunity cost of holding monetary assets is lower, and the quantity of money demanded, but not the demand for money, is greater.
D)​the opportunity cost of holding monetary assets is lower, and the demand for money increases.

Quizplus · Accepted Answer

When interest rates are higher, the opportunity cost of holding monetary assets is also higher. This means that the cost of not investing that money and earning interest is greater. As a result, people tend to hold less cash or monetary assets and demand for money decreases, leading to a lower quantity of money demanded.

When Interest Rates Are Higher