Question

An increase in the U.S. interest rate

A. raises the opportunity cost of holding dollars.
B. shifts money demand to the right.
C. induces households to increase consumption.
D. leads to a depreciation of the U.S. dollar.

Answer 1

The correct answer is letter "A": raises the opportunity cost of holding dollars.

Step-by-step explanation:

An interest rate is the cost of borrowing money or the compensation for assuming the risks for lending money. Interest is a cost for one party and income for another. As interest rates increase, people will tend to spend less money so, by keeping it saved, the money earns more value as a form of interest.