If the nominal interest rate rises
A)consumers and firms are less inclined to use credit cards.
B)there is substantial inflation in the economy.
C)inflation is declining.
D)real interest rates are declining.
E)the opportunity cost of holding cash rises.

Question

Quizplus · Accepted Answer

When the nominal interest rate rises, the opportunity cost of holding cash also rises. This means that holding cash becomes less beneficial compared to other assets that offer higher returns, such as bonds or savings accounts. As a result, consumers and firms may be more inclined to invest their money instead of keeping it in cash.

If the Nominal Interest Rate Rises