Question

question 20
why does a high interest rate discourage people from holding their money in cash?
google translate

• they can get interest for it when it is invested.
• they are fearful of inflation.
• they are more concerned that it will be stolen.
• they cannot be sure that cash will hold its value.

Explanation:

To determine the correct answer, we analyze each option:

• Option 1: When interest rates are high, investing money (e.g., in savings accounts, bonds) yields interest. Holding cash earns no interest, so people are discouraged from holding cash as they can earn interest by investing it. This aligns with the opportunity cost of holding cash.
• Option 2: Fear of inflation is not directly related to the impact of high interest rates on holding cash. Inflation concerns are more about the general rise in prices, not the incentive from interest rates.
• Option 3: Concern about theft is a security - related issue and not related to the economic incentive of interest rates.
• Option 4: Uncertainty about cash holding its value is more related to inflation or currency stability, not the effect of high interest rates on the decision to hold cash.

Answer:

A. They can get interest for it when it is invested.