Explain How People Will Switch Between Bonds and Money If

question 32

Essay

Explain how people will switch between bonds and money if the interest rate is initially below the market-clearing level. Explain your answer in terms of opportunity costs.

---

Definitions:

Net Asset Test

A financial assessment to determine a company's or individual's net worth by subtracting total liabilities from total assets.

Revised Act

Refers to legislation that has been updated or amended to incorporate changes or new provisions since its original enactment.

Earned Surplus

Profits that a company has retained rather than distributed to shareholders, typically used for reinvestment in the business or to pay down debt.

Undistributed Profits

Profits earned by a company that have not been paid out as dividends to shareholders and are retained for reinvestment.