When the nominal interest rate rises, the opportunity cost of holding money
A)falls, and people hold more money.
B)rises, and people hold less money.
C)falls, and people hold less money.
D)rises, 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 increases. This means that people will want to hold less money and will be more inclined to invest their money in higher yielding assets, such as bonds or savings accounts. Therefore, the correct answer is B.

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