When the interest rate decreases, the opportunity cost of holding money
A) increases, so the quantity of money demanded increases.
B) increases, so the quantity of money demanded decreases.
C) decreases, so the quantity of money demanded increases.
D) decreases, so the quantity of money demanded decreases.

Question

Quizplus · Accepted Answer

When the interest rate decreases, the opportunity cost of holding money decreases because people forego less interest by holding cash instead of investing. This leads to an increase in the quantity of money demanded.

When the Interest Rate Decreases, the Opportunity Cost of Holding