The demand for money schedule shows the ________ relationship between money demand and the nominal interest rate which means that as the ________.
A) negative; nominal interest rate increases, the opportunity cost of holding money increases.
B) negative; nominal interest rate increases, the opportunity cost of holding money decreases.
C) positive; nominal interest rate increases, the opportunity cost of holding money increases.
D) positive; nominal interest rate increases, the opportunity cost of holding money decreases.
E) negative; the opportunity cost of holding money increases, the nominal interest rate increases.

Question

Quizplus · Accepted Answer

The demand for money schedule shows a negative relationship between money demand and the nominal interest rate, which implies that as the nominal interest rate increases, the opportunity cost of holding money increases. This is because people can earn a higher return by holding interest-bearing assets instead of money as the interest rate increases. Therefore, the answer is A.

The Demand for Money Schedule Shows the ________ Relationship Between