Suppose You Hold $5, 000 in Cash When the Interest

question 136

True/False

Suppose you hold $5, 000 in cash when the interest rate on bonds is 4 percent.Other things equal, as the bond interest rate declines to 3 percent, you will want to hold more money because the opportunity cost of holding money has decreased.

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Definitions:

High Inflation

A situation characterized by an excessive and accelerating increase in the prices of goods and services across the economy.

Expectations

Beliefs or forecasts about future events that affect economic decisions, such as consumption, savings, and investment.

Adverse Supply Shock

An unexpected event that suddenly decreases the supply of a good or service, potentially leading to higher prices and lower output.

Short-Run Phillips

A concept describing the inverse relationship between unemployment and inflation within a short-term period.