The Quantity of Real Balances Demanded Varies ____ with the Nominal

Multiple Choice

The quantity of real balances demanded varies ____ with the nominal rate of interest because ________.

A) directly; at higher interest rates people want more money
B) inversely; at lower interest rates people want less money
C) inversely; when people hold more money, they forego interest on other assets
D) directly; real balances are independent of inflation and would not be affected by it