Suppose you've just inherited $10,000 from a relative. You're trying to decide whether to put the $10,000 in a noninterest-bearing account so that you can use it whenever you want (that is, hold it as money) or to use it to buy a government bond. NOTE: the options for opportunity for dollars per year for cost at interest rate 6% are (166,667 or 6 or 600 or 0.06 or 10,000) the options for opportunity for dollars per year for cost at interest rate 3% are (333,333 or 10,000 or 300 or 3 or 0.03) What does the previous analysis suggest about the market for money? The quantity of money demanded increases as the interest rate falls. The quantity of money demanded decreases as the interest rate falls. The supply of money is independent of the interest rate. 1. The opportunity cost of holding assets as moneySuppose you've just inherited $10,000 from a relative. You're trying to decide whether to put the $10,000 in a noninterest-bearing account so thatyou can use it whenever you want (that is, hold it as money) or to use it to buy a government bond.The opportunity cost of holding the inheritance as money depends on the interest rate on the bond.For each of the interest rates in the following table, compute the opportunity cost of holding the $10,000 as money.Interest Rate on Government BondOpportunity Cost(Percent)(Dollars per year)63What does the previous analysis suggest about the market for money?O The quantity of money demanded increases as the interest rate falls.O The quantity of money demanded decreases as the interest rate falls.The supply of money is independent of the interest rate.

Answered: 1. The opportunity cost of holding…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose you've just inherited $10,000 from a relative. You're trying to decide whether to put the $10,000 in a noninterest-bearing account so that you can use it whenever you want (that is, hold it as money) or to use it to buy a government bond.

NOTE:

the options for opportunity for dollars per year for cost at interest rate 6% are (166,667 or 6 or 600 or 0.06 or 10,000)

the options for opportunity for dollars per year for cost at interest rate 3% are (333,333 or 10,000 or 300 or 3 or 0.03)

What does the previous analysis suggest about the market for money?

The quantity of money demanded increases as the interest rate falls.

The quantity of money demanded decreases as the interest rate falls.

The supply of money is independent of the interest rate.

1. The opportunity cost of holding assets as money
Suppose you've just inherited $10,000 from a relative. You're trying to decide whether to put the $10,000 in a noninterest-bearing account so that
you can use it whenever you want (that is, hold it as money) or to use it to buy a government bond.
The opportunity cost of holding the inheritance as money depends on the interest rate on the bond.
For each of the interest rates in the following table, compute the opportunity cost of holding the $10,000 as money.
Interest Rate on Government Bond
Opportunity Cost
(Percent)
(Dollars per year)
6
3
What does the previous analysis suggest about the market for money?
O The quantity of money demanded increases as the interest rate falls.
O The quantity of money demanded decreases as the interest rate falls.
The supply of money is independent of the interest rate.

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