When the nominal interest rate rises, the opportunity cost of holding money
A)rises and people hold more money.
B)falls and people hold more money.
C)falls and people hold less money.
D)rises and people hold less money.
E)does not change.

Question

Quizplus · Accepted Answer

The nominal interest rate is the opportunity cost of holding money. When it rises, the cost of holding onto money increases, therefore people choose to hold less money and invest it in bonds or other interest-earning assets.

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