If the interest rate rises, how does this affect how much money people hold?
A) People hold less money, because its opportunity cost has increased.
B) People hold more money, because its opportunity cost has increased.
C) People hold less money, because its opportunity cost has declined.
D) People hold more money, because its opportunity cost has declined.

Question

If the interest rate rises, how does this affect how much money people hold?  
A) People hold less money, because its opportunity cost has increased. 
B) People hold more money, because its opportunity cost has increased. 
C) People hold less money, because its opportunity cost has declined. 
D) People hold more money, because its opportunity cost has declined.

Quizplus · Accepted Answer

When the interest rate rises, the opportunity cost of holding money increases. This means that people can earn more by investing the money rather than holding it, so they will hold less money.

If the Interest Rate Rises, How Does This Affect How