When nominal interest rates fall on financial assets such as U.S.Treasury bills,the amount of interest that households and firms
A) gain by holding money decreases.
B) lose by holding money decreases.
C) lose by holding money increases.
D) lose or gain by holding money does not change.

Question

Quizplus · Accepted Answer

When nominal interest rates fall, the opportunity cost of holding money (i.e., what households and firms lose in terms of interest by holding money instead of investing in financial assets like U.S. Treasury bills) decreases. This is because the interest they would have earned by holding such assets is now lower.

When Nominal Interest Rates Fall on Financial Assets Such as U.S.Treasury