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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