Question

An increase in the interest rate A. increases the percentage yield of holding money. B. decreases the opportunity cos

Answer 1

increases the opportunity cost of holding money

Step-by-step explanation:

An increase in the interest rate actually increases the opportunity cost of holding money.

The opportunity cost of holding money is the nominal interest rate. Opportunity cost can be referred to as the interest rate that is forgone on alternative assets. So, when interest rate increases, the opportunity cost of holding money also increases.