Question

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

Answer 1

Answer:

The correct answer is C. increases the opportunity cost of holding money.

Explanation:

When there is an increase in the interest rate, there is an increase in opportunity cost. The opportunity cost being the increase in interest that would have have been gained if the money was invested. This is explained by the definition of opportunity cost which is; opportunity cost is the profit lost when one alternative is selected over another.