Final answer:
A reduction in the interest rate will prompt individuals to hold more money in cash, as the opportunity cost of not earning interest is lower.
Step-by-step explanation:
A reduction in the interest rate will cause an increase in the amount of money one wishes to hold.
The amount of money a person wishes to hold depends on the opportunity cost of holding cash versus earning interest in savings accounts or investments. When interest rates are high, the opportunity cost of holding money is higher, so people tend to keep less cash on hand. Conversely, when interest rates are reduced, the opportunity cost is lower, and people are incentivized to hold more money as cash since they're not foregoing significant earnings from interest. Income level influences overall spending and saving habits, but a direct reduction in income does not typically increase the amount of money a person wishes to hold in the form of cash.