Question

The opportunity cost of holding money

a. decreases when the interest rate decreases, so people desire to hold more of it.
b. decreases when the interest rate decreases, so people desire to hold less of it.
c. increases when the interest rate decreases, so people desire to hold more of it.
d. increases when the interest rate decreases, so people desire to hold less of it.

Answer 1

The opportunity cost of holding money decreases when the interest rate decreases, so people desire to hold more of it. Opportunity cost is what you are giving up to gain something else. The opportunity to do something, which takes an opportunity to do something else away. When the interest decreases, there is less things you are giving up to hold onto that money.