'When interest rates increase, the opportunity cost of holding money will decrease and the quantity of money demanded by households and firms will increase.
In microeconomic theory, the opportunity cost of a particular activity is the value or benefit given up by engaging in that activity compared to engaging in an alternative activity. Simply put, once you have decided on an activity, you give up the possibility of choosing another option.
Opportunity Cost Law: Increasing the production of one good increases the opportunity cost of producing additional goods. First, remember that opportunity cost is the value of the next best option when making a decision. it is something to give up.
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