The lower the nominal interest rate, the
A) greater the quantity of money supplied.
B) greater the quantity of money demanded.
C) greater the demand for money.
D) smaller the quantity of money demanded.
E) smaller the demand for goods and services.

Question

Quizplus · Accepted Answer

The lower the nominal interest rate, the cheaper it is to borrow money, which increases the quantity of money people want to hold. This is because, at lower interest rates, the opportunity cost of holding money (instead of investing it) is lower, making people more inclined to hold onto cash for transactions and precautionary reasons.

The Lower the Nominal Interest Rate, the