The Fed’s Primary Task - Cost of holding money

6 important questions on The Fed’s Primary Task - Cost of holding money

What does holding money result in regarding potential earnings?

You miss out on potential earnings from alternative assets like bonds or stocks.

What is the term for the earnings missed when holding money?

This is called the opportunity cost of holding money.

How do economists refer to the cost associated with holding money?

They call it the marginal cost of holding money.
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What is the nominal interest rate for most forms of money?

Most forms earn 0% nominal interest.

What do alternative assets offer compared to cash and checking deposits?

They offer positive interest/returns compared to 0% nominal interest.

How does the rise in nominal interest rates on alternatives affect holding money?

As rates rise, the cost of holding money also rises.

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