When the rate of interest falls,
A)the opportunity cost of money increases, and the quantity of money demanded declines.
B)the opportunity cost of money increases, and the quantity of money demanded increases.
C)the demand for money is unaffected.
D)the opportunity cost of money decreases, and the quantity of money demanded declines.
E)the opportunity cost of money decreases, and the quantity of money demanded increases.

Question

Quizplus · Accepted Answer

As the interest rate falls, the opportunity cost of holding money decreases since it is now cheaper to borrow money. As a result, people will demand more money, leading to an increase in the quantity of money demanded.

When the Rate of Interest Falls