If the nominal interest rate increases:

Name: If the nominal interest rate increases:
Brand: Quizplus
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Question

Quizplus · Accepted Answer

When the nominal interest rate increases, the opportunity cost of holding money increases as well. This means that people will prefer to invest their money instead of holding it, as they can earn more interest. Therefore, the demand for money decreases, and its value decreases as well (price of goods and services will rise). This results in an increase in the cost of holding money.

If the Nominal Interest Rate Increases