An increase in the rate of interest would increase

A) the opportunity cost of holding money.
B) the transactions demand for money.
C) the asset demand for money.
D) the price of bonds.

Question

An increase in the rate of interest would increaseA) the opportunity cost of holding money.B) the transactions demand for money.C) the asset demand for money.D) the price of bonds.

Cathryn Ackerman · Accepted Answer

Final Answer : A, Explanation :  An increase in the rate of interest would make holding money less attractive because it would be more profitable to invest that money elsewhere, hence increasing the opportunity cost of holding money. This would lead to a decrease in the demand for money and an increase in the demand for other assets like bonds, which would reduce their price. Therefore, options B, C, and D are incorrect.

An increase in the rate of interest would increase

A) the opportunity cost of holding money.
B) the transactions demand for money.
C) the asset demand for money.
D) the price of bonds.

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Learning Objectives

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