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

Question

Quizplus · Accepted Answer

When the nominal interest rate rises, the opportunity cost of holding money increases because individuals could be earning more interest if they invested their money instead. As a result, people tend to hold less money.

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