Why is the nominal interest rate the opportunity cost of holding money?
What will be an ideal response?
The nominal interest rate is the opportunity cost of holding money because the nominal interest is the income forgone by holding money. For instance, an individual with $1,000 can hold the funds either as money or as a financial asset with an interest rate of, say, 7 percent. If the funds are held as money, the interest paid is $0; if they are held as a financial asset, the interest paid is $70. Choosing to hold the funds as money therefore has an opportunity cost of the interest income forgone, which is $70 or 7 percent per dollar. So, the opportunity cost of each dollar held as money is 7 percent.
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The cost data in the above table data show that production is characterized by
A) economies of scale. B) constant returns to scale. C) decreasing returns to scale. D) More information is needed to answer the question.
Which of the following provides the best explanation of why low-income countries generally remain poor?
a. Their political environment and policies often discourage productive activity and reduce the potential gains from specialization and exchange. b. They are oppressed by developed nations that benefit from the cheap goods available from countries with low wage rates. c. They are poorly endowed with natural resources, which are essential for long-term rapid growth. d. When the average income level is low, workers have little incentive to earn higher incomes.