As the interest rate rises, people hold ________ money in non-interest-bearing checking accounts instead of savings accounts because the opportunity cost of holding money has ________.

Question

Quizplus · Accepted Answer

When the interest rate rises, the opportunity cost of holding money rises as well because people could be earning more interest by putting their money in a savings account. As a result, people are more likely to hold less money in non-interest-bearing checking accounts and transfer it to savings accounts instead. Therefore, people hold less money in non-interest-bearing checking accounts as the interest rate rises.

As the Interest Rate Rises, People Hold ________ Money in Non-Interest-Bearing