When the nominal interest rate rises, the opportunity cost of holding money
A) rises and people hold less money.
B) falls and people hold less money.
C) falls and people hold more money.
D) rises and people hold more money.

Question

Quizplus · Accepted Answer

When the nominal interest rate rises, the opportunity cost of holding money increases. This means that people have a greater incentive to put their money in interest-bearing accounts or investments instead of holding onto cash. Therefore, people hold less money.

When the Nominal Interest Rate Rises, the Opportunity Cost of Holding