When inflation rises, the nominal interest rate

a. rises and people desire to hold more money.

b. rises and people desire to hold less money.

c. falls and people desire to hold more money.

d. falls and people desire to hold less money

a. rises and people desire to hold more money

Explanation:

This is said to be the fisher effect, with the rise in interest rats the opportunity cost also rises, as the quantity of demanded money increases so does the changes in the nominal GDP. Thus rise in inflation rates the consumers have more money to spend and cause the economy to grow, thus the rise in the people demand money leads to a rising in demands, etc.

Option (B) is correct.

Explanation:

There is a positive relationship between the inflation rate and the nominal interest rate. When there is an increase in the inflation rate then as a result nominal interest rate also increases at a same rate. This means that people desire to hold less money because of higher nominal interest rate.

Suppose that nominal interest on a savings account is at 5% and inflation rate is at 3% then this means that money in the savings account grows at a 2% and this 2% is a real interest rate.