36) The opportunity cost of holding money is the A) nominal interest rate B) rea

Question

36) The opportunity cost of holding money is the A) nominal interest rate B) real interest rate. C) inflation rate. D) time it takes to go to the ATM or bank. E) growth rate of real GDP. 37) The the nominal interest rate, the is the quantity of money demanded." A) lower, greater B) lower; smaller C) higher, greater D) more variable; smaller E) None of the above because the nominal interest rate does not influence the quantity of money demanded 38) Mary has $1,000 and is considering purchasing a $1,000 bond that pays 7 percent interest per year. Mary decides not to buy the bond and holds the $1,000 as cash. If the inflation rate is 4 percent, the opportunity cost of holding the $1,000 as money is A) $30.00. B) $40.00. C) $70.00. D) $110.00. $100.00. 39) The real interest rate equals the A) nominal interešt rate inflation rate. B) (nominal interest rate+ inflation rate) × 100. C) inflation rate - nominal interest rate. D) (nominal interest rate × inflation rate)/100. E) nominal interest rate +inflation rate. 40) When the nominal interest rate falls, there is A) an upward movement along the demand for money curve. B) a downward movement along the demand for money curve. C) a rightward shift of the demand for money curve D) a leftward shift of the demand for money curve E) no movement along the demand for money curve and the curve does not shift 41) If the price level increases, the A) demand for money increases. B) demand for money decreases. C) quantity of money demanded increases D) quantity of money demanded decreases. E) demand for money does not change and the quantity of money demanded does not change.

Explanation / Answer

36) B) the real interest rate. This is what the money can earn while in bank

37) E. Because money is demanded for the purchase of goods and thus the nominal price or nominal interest rate doesn’t influence our decision.

38) A.opportunity cost = interest foregone:

Real interest rate = 7-4 = 3%

= 1000*0.03

=$30

38) A.) Nominal rate – inflation rate

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