An increase in the nominal interest rate, all else held constant, will always cause which of the following?
A) The demand for money to decrease.
B) The expected inflation rate to decrease.
C) The real interest rate to decrease.
D) The demand for money to increase.
E) The inflation rate to decrease.

Question

Quizplus · Accepted Answer

An increase in the nominal interest rate makes holding money more expensive (since you could be earning interest if that money were in the bank), leading to a decrease in the demand for money as people prefer to hold less cash and more interest-bearing assets.

An Increase in the Nominal Interest Rate, All Else Held