An increase in the nominal interest rate,other things constant,will:
A)shift the money demand curve to the right.
B)shift the money demand curve to the left.
C)increase the quantity of money people choose to hold.
D)decrease the quantity of money people choose to hold.
E)have no impact on the money demand curve.

Question

Quizplus · Accepted Answer

An increase in the nominal interest rate will make holding money more costly relative to holding other assets, like bonds, which pay interest. As a result, people will choose to hold less money and invest more in interest-bearing assets, decreasing the quantity of money they choose to hold. This is represented by a movement along the money demand curve, not a shift.

An Increase in the Nominal Interest Rate,other Things Constant,will