An increase in the interest rate
A)decreases the opportunity cost of holding money.
B)increases the opportunity cost of holding money.
C)decreases the percentage yield of holding money.
D)increases the percentage yield of holding money.

Question

Quizplus · Accepted Answer

A higher interest rate means that individuals can earn a higher return by investing their money, increasing the opportunity cost of holding cash. Therefore, people are more likely to invest their money rather than hold onto it, as the alternative offers a higher return.

An Increase in the Interest Rate