At higher nominal rates of interest, the demand for real balances is:
a. higher because savers can earn higher returns.
b. lower because the opportunity cost of holding those funds is higher.
c. invariant with respect to the nominal interest rate.
d. inversely related to the price level.
Ans: b. lower because the opportunity cost of holding those funds is higher.
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Suppose the market for oranges is perfectly competitive and unregulated. Suppose also that the chemicals used to keep the oranges insect-free damage the environment by an estimated $1 per bushel of oranges. Suppose QD = 1000 - 100P and QS = -100 + 100P. The price consumers would have to pay for the market to achieve the socially optimal level of production is
a. 5 b. 5.5 c. 6 d. 6.5
Ceteris paribus, which of the following is most likely to shift both the demand and the supply curves?
A. The price of the good itself. B. Expectations. C. Income. D. Technology.