When nominal interest rates are higher, _____.

Question

Quizplus · Accepted Answer

Nominal interest rates represent the opportunity cost of holding monetary assets because holding money means that the individual is not earning interest on that money. Therefore, when nominal interest rates are higher, the opportunity cost of holding monetary assets is higher, meaning that individuals are more likely to invest their money to earn a return. As a result, the quantity of money demanded will decrease, but the demand for money (the desire to hold money for transactions and precautionary reasons) may not necessarily change.

When Nominal Interest Rates Are Higher, _____