Monetary Policy - the demand for money - the opportunity cost of holding money

7 important questions on Monetary Policy - the demand for money - the opportunity cost of holding money

What do we call types of assets that are not made up of money nor function as money?

Non-monetary assets

How much interest rate on currency does cash in our wallets  bear?


What do wee call financial assets that come due or mature  in less than one year

Short term interest rates
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What happens to interest rates on money when chequable savings account fall?

The interest rate falls by much less then if the short term interest rate falls

What will happen to short term assets that offer a lower than average interest rate? What will then happen to the interest rate? Why?

It will be sold by investors
the interest rate will increase
because investors will be rewarded with a higher rate in order to induce them to buy it

What will happen when the short term asset has an above average interest rate? What will happen to interest rate? Why?

short term assets will be demanded by investors more than the supply
The interest rates falls when more investors buy the assets
because sellers find that they can lower the rate of return on the asset and still find willing buyers

Which rate of interest time horizon, affects money demand? Why?

The short term rate
it is better to invest in short term assets, instead of holding the money with zero interest rate, because it is short term you will get your money back soon enough

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