The price of holding money balances is equal to the price of bonds that could have...
The price of holding money balances is equal to the
| price of bonds that could have been purchased with those money balances. |
| the interest rate that could have been earned had those money balances been invested in an interest-bearing alternative (e.g., a bond). |
| any of the above |
| price of goods and services that could have been purchased with those money balances. |
Homework Answers
Answer
Option 2
the interest rate that could have been earned had those money balances been invested in an interest-bearing alternative (e.g., a bond).
The price is the opportunity cost of it, and that is interest earned on the money from the best alternative.
Purchasing bonds or goods or services with it is not the price of it because the price of it is forgone benefit and that interest amount on it.
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