Answer to Question #130989 in Macroeconomics for Valerie

Question

Which one of the following statements is incorrect?
[1] The opportunity cost of holding money balances is the interest that could have been earned if the money had been used to purchase interest-bearing assets instead.
[2] The quantity of money demanded for transaction purposes depends on the interest rate.
[3] The demand for money as an asset is also called the speculative demand for money.
[4] The quantity of money demanded for speculative purposes is negatively related to the interest rate.

Answer 1

1) The opportunity cost of holding money balances is the interest that could have been earned if the money had been used to purchase interest-bearing assets instead.