The higher the nominal interest rate, the
A) greater the opportunity cost of holding money.
B) lower the quantity of money demanded.
C) more the demand for money curve shifts leftward.
D) Both answers A and B are correct.

Question

Quizplus · Accepted Answer

The higher the nominal interest rate, the greater the opportunity cost of holding money because individuals could be earning interest on those funds if they were invested elsewhere. This also leads to a lower quantity of money demanded since people prefer to hold less cash and more interest-bearing assets. Hence, both A and B are correct.

The Higher the Nominal Interest Rate, the