What is the opportunity cost of holding money quizlet?

What is the opportunity cost of holding money quizlet?

The opportunity cost of holding money is the interest rate foregone on an alternative asset. The relationship between the quantity of money demanded and the nominal, interest rate, when all other influences on the amount of money that people wish to hold remain the same.

What is the opportunity cost for holding money as an asset?

The opportunity cost of holding money is the interest forgone on an alternative asset. The opportunity cost of holding money is the nominal interest because it is the sum of the real interest rate on an alternative asset plus the expected inflation rate, which is the rate at which money loses buying power.

Is the opportunity cost of holding money decreases the quantity demanded of money?

The opportunity cost of holding money decreases, so the quantity of money demanded increases.

When the interest rate increases the opportunity cost of holding money quizlet?

When the interest rate increases, the opportunity cost of holding money decreases, so the quantity of money demanded decreases. the interest rate to rise, so aggregate demand shifts left. The interest-rate effect stems from the idea that a higher price level decreases the real value of households’ money holdings.

What is the opportunity cost of holding money and why is this the opportunity cost?

The opportunity cost of holding money is the interest rate forgone on an alternative asset. If you can earn 8 percent a year on a mutual fund account, then holding an additional $100 in money costs you $8 a year. Your opportunity cost of holding $100 in money is the goods and services worth $8 that you must forgo.

When interest rate increases the opportunity cost of holding money?

When the interest rate increases, the opportunity cost of holding money decreases, so the quantity of money demanded decreases. You just studied 25 terms!

What is the opportunity of holding money?

The opportunity cost of holding money is the cost that could be realized if money were invested instead of held. In other words, it is the interest rate that money is earning in a chosen investment. Typically, it is the interest rate that is set on a bond, particularly a government bond.

Why an increase in the opportunity cost of holding money leads to an increase in velocity?

The Demand for Money and the Velocity of Money Are Inversely Related. An increased money supply will lower money velocity, while a decreased money supply will increase money velocity, all else being equal. But, in the short term, the money supply is considered constant.

What is opportunity cost interest?

Opportunity cost: The cost of an opportunity forgone (and the loss of the benefits that could be received from that opportunity); the most valuable forgone alternative. interest rate: The percentage of an amount of money charged for its use per some period of time.

What is meant by opportunity cost?

When economists refer to the “opportunity cost” of a resource, they mean the value of the next-highest-valued alternative use of that resource. If, for example, you spend time and money going to a movie, you cannot spend that time at home reading a book, and you can’t spend the money on something else.