When nominal interest rates increase,the opportunity cost of holding money will ________,and the quantity of money demanded by households and firms will ________.

Question

Quizplus · Accepted Answer

When nominal interest rates increase, the opportunity cost of holding money increases. This means that households and firms will prefer to hold less money and instead invest in higher-yielding financial assets, such as bonds or stocks. Therefore, the quantity of money demanded by households and firms will decrease.

When Nominal Interest Rates Increase,the Opportunity Cost of Holding Money