The opportunity cost of holding assets as money Suppose you\'ve just inherited $

Question

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 non-interest-bearing account so that you can use it whenever you wart {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 or the interest rate on the bond. For each of the interest rates in the following table, compute the opportunity cost of holding the $20,000 as money. 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.

Explanation / Answer

At 6%=$600 Per Year

At 4%=$400 Per Year

Quantity of Money Demanded increase as interest rate falls low interest rate stimulates the person not to save and he will be having a tendency to forego opportunity cost.

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