According to Liquidity Preference Theory,the Opportunity Cost of Holding Money

question 46

Multiple Choice

According to liquidity preference theory,the opportunity cost of holding money is

• A)the interest rate on bonds.
• B)the inflation rate.
• C)the cost of converting bonds to a medium of exchange.
• D)the difference between the inflation rate and the interest rate on bonds.

---

Definitions:

Money Supply

The sum of all financial resources in the form of cash, coins, and bank account balances present in an economy at a certain time.

Tight Money Policy

A monetary policy strategy used by central banks to slow economic growth by increasing interest rates and reducing the supply of money.

Government Bonds

Fixed-income securities issued by a government to support government spending, typically offering a regular interest payment and repayment of the principal at maturity.

Easy Money

A monetary policy stance characterized by low interest rates and high availability of credit to encourage economic growth.