When the nominal interest rate rises, the opportunity cost of holding money
A)falls and people hold less money.
B)rises and people hold more money.
C)rises and people hold less money.
D)falls and people hold more money.
E)does not change.

Question

Quizplus · Accepted Answer

When the nominal interest rate rises, the opportunity cost of holding money also rises. This means that if people hold onto their money, they are sacrificing potential interest earnings. Therefore, people are less likely to hold onto money and are more likely to invest or spend it, leading to a decrease in money held.

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