If the nominal interest rate rises,
A) there is substantial inflation in the economy.
B) real interest rates are declining.
C) the opportunity cost of holding cash rises.
D) consumers and firms are less inclined to use credit cards.
E) inflation is declining.

Question

Quizplus · Accepted Answer

When nominal interest rates rise, the opportunity cost of holding cash increases because the potential earnings from interest-bearing accounts or investments become more attractive.

If the Nominal Interest Rate Rises