Suppose you have $100 to invest. You can hold it in cash, you can deposit it in some savings account that pays a nominal interest rate of 0.5%, or you can invest in physical capital. The real rate of return on capital is 1%. The inflation rate is -1%. The three options are risk free. The optimal decision is to: hold some cash and invest the rest in capital invest the $100 in physical capital deposit the $100 in the savings account hold the 100$ in cash

Suppose you have $100 to invest. You can hold it in cash, you can deposit it in some savings account that pays a nominal interest rate of 0.5%, or you can invest in physical capital. The real rate of return on capital is 1%. The inflation rate is -1%. The three options are risk free. The optimal decision is to: hold some cash and invest the rest in capital invest the $100 in physical capital deposit the $100 in the savings account hold the 100$ in cash

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter7: Unemployment And Inflation

Section: Chapter Questions

Problem 7E

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