Answered: An increase in the interest rate…

Business

Economics

An increase in the interest rate decreases the opportunity cost of holding money,

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter4: Labor And Financial Markets

Section: Chapter Questions

Problem 6SCQ: If a usury law limits interest rates to no more than 35, what would the likely impact be on the...

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Suppose you've just inherited $5,000 from a relative. You're trying to decide whether to put the $5,000 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 $5,000 as money. Interest Rate on Government Bond Opportunity Cost (Percent) (Dollars per year) 9 6 What does the previous analysis suggest about the market for money? The quantity of money demanded decreases as the interest rate falls. The quantity of money demanded increases as the interest rate falls. The supply of money is independent of the interest rate. Note:- Please avoid using ChatGPT and refrain from providing handwritten solutions; otherwise, I will definitely give a downvote. Also, be mindful of plagiarism. Answer…
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