In the Textbook Model, Wealth Is Held in Two Forms

question 102

Multiple Choice

In the textbook model, wealth is held in two forms: money and in bond funds. Which of the following statements are true?
I. Money and bond funds earn the same interest rates in a well functioning money market.
II. Money is a more liquid asset compared to bond funds.
III. Bond funds are interest earning assets while money generally is not.
IV. The difference between the interest rates paid on money deposits and the interest return available from bonds is the cost of holding money.

• A) I, II, and IV
• B) I and IV
• C) II, III, and IV
• D) III and IV

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Definitions:

Motivated Reasoning

A cognitive process where individuals form and cling to beliefs despite contrary evidence, driven by emotion or desire rather than objective evaluation.

Evidence

Information or facts that are used to support a conclusion, belief, or proposition.

Beliefs

A conviction or acceptance that something is true or exists.

Early Payment Discount

A reduction in the amount due for goods or services offered by a seller to buyers who pay their bill before a specified date.