When the Nominal Interest Rate Rises, the Quantity of Money

question 82

Multiple Choice

When the nominal interest rate rises, the quantity of money demanded decreases because

• A) people will buy fewer goods and hence hold less money.
• B) the price level also rises and people decrease their demand for money.
• C) people shift funds from interest-bearing assets into money.
• D) people shift funds from money holdings to interest-bearing assets.

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Definitions:

Rate of Interest

The percentage at which interest is paid by a borrower for the use of money they borrow from a lender.

Final Payment

The last payment made to settle a financial obligation, completing the payment schedule.

Interest Annually

The payment received or owed for the use of money calculated over a one-year period.

Payment Now

An immediate transfer of funds or payment ofmoney without delay.