An increase in the rate of interest would increase-
A The transaction demand for money
B The opportunity cost of holding money
C The asset demand for money
D The price of Bond
Solution
Correct Answer: Option B
- an increase in the interest rate would increase the opportunity cost of holding money, because it means that people could earn more money by investing their money in other assets, such as bonds or savings accounts.
- This would lead to a decrease in the demand for money, as people would prefer to hold other assets instead