What is liquidity? Why is money the most liquid of all assets? What is the cost of this liquidity?
What will be an ideal response?
Liquidity is the degree to which an asset can be acquired or disposed of without much danger of any loss in nominal value and with small transaction costs. Money is the most widely and readily accepted asset that can be exchanged for other goods and services, so it is the most liquid asset. The cost of this liquidity is the interest yield given up that was available by holding another asset.
You might also like to view...
The rate at which a person is willing to give up a gallon of gasoline to get one more pound of coffee and remain on the same indifference curve is called his or her
A) relative cost of coffee in terms of gasoline. B) indifference cost of coffee. C) personal price of coffee. D) marginal rate of substitution.
Each point on the Phillips curve represents a combination of the:
a. consumption rate and the unemployment rate. b. savings rate and the inflation rate. c. interest rate and the savings rate. d. inflation rate and the unemployment rate.