Please help me with these two problems please. 1. U.S. banks did not offer inter

Question

Please help me with these two problems please.

1. U.S. banks did not offer interest on checking accounts, until the beginning of the 1980s. As a result:
a) the opportunity costs of keeping funds in checking accounts was zero equal to the interest foregone.
B) the opportunity costs of keeping funds in checking accounts was low.
C) the oportunity costs of keeping funds in checking accounts was high.
D) people stopped using banking services and started keeping mone under their mattresses.


2. The "Flight to Safety" in March 2008 was:
A) the rescue of reporters held hostage in Iran by the Israeli air force.
B) investors purchasing Treasury bills and driving their interest rates down because they feared the safety of other assets
C) investors selling Treasury bills and driving their interest rates up because they feared that Treasury bills were too risky.
D) Japanese reliance on cash rather than credit cards to avoid the dangers of identity theft.

Explanation / Answer

1) Opportunity cost is the cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action. this means that if there were any other alternatives (such as bonds,stocks,annuities, etc) that had any sort of earning associated with it, the opportunity cost would be high, as you were choosing a 0% interest over an X% interest. the opportunity cost would calculate to (x% - 0%), which in turn was 100% of the alternate choice. C is your answer 2) When it comes to “safe” investments, there’s arguably nothing safer than U.S. Treasury Bills. “T-Bills”, as they are often called, are very short-term bonds issued at a discount and mature in less than one year. These bonds are backed by the “full faith and credit” of the U.S. Treasury and would only become worthless if the U.S. Treasury itself went bankrupt. At the beginning of the financial crisis, many people sold their stocks and moved into T-bills. B is your answer

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