1. The opportunity cost of holding assets as money Suppose you've just inherited $165,000 from a relative. You're trying to decide whether to put the $165,000 in a non-interest-bearing account so that you can use it whenever you want (that is, hold it as money) or to use it to buy a U.S. Treasury 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 $165,000 as money. Interest Rate on Government Bond (Percent) 8 Opportunity Cost (Dollars per year) 10 What does the previous analysis suggest about the market for money? The quantity of money demanded decreases as the interest rate rises. The supply of money is independent of the interest rate. The quantity of money demanded increases as the interest rate rises.

1. The opportunity cost of holding assets as money Suppose you've just inherited $165,000 from a relative. You're trying to decide whether to put the $165,000 in a non-interest-bearing account so that you can use it whenever you want (that is, hold it as money) or to use it to buy a U.S. Treasury 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 $165,000 as money. Interest Rate on Government Bond (Percent) 8 Opportunity Cost (Dollars per year) 10 What does the previous analysis suggest about the market for money? The quantity of money demanded decreases as the interest rate rises. The supply of money is independent of the interest rate. The quantity of money demanded increases as the interest rate rises.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter17: Financial Markets

Section: Chapter Questions

Problem 37P: Imagine that a local water company issued 10,000 ten-year bond at an interest rate of 6. You are...

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1. The opportunity cost of holding assets as money
Suppose you've just inherited $165,000 from a relative. You're trying to decide whether to put the $165,000 in a non-interest-bearing account so that
you can use it whenever you want (that is, hold it as money) or to use it to buy a U.S. Treasury 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 $165,000 as money.
Interest Rate on Government Bond
(Percent)
8
10
Opportunity Cost
(Dollars per year)
What does the previous analysis suggest about the market for money?
о
The quantity of money demanded decreases as the interest rate rises.
The supply of money is independent of the interest rate.
The quantity of money demanded increases as the interest rate rises.

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