Banks reduce the opportunity cost of the trade-off between rate of return and liquidity by offering deposit accounts that provide a relatively high rate of return while also allowing easy access to funds when needed. This encourages people to save money in banks rather than holding onto cash, which improves liquidity in the economy.

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Banks

Question 200

Multiple Choice

Banks:

A) reduce the opportunity cost of the trade-off between rate of return and liquidity.
B) increase the opportunity cost of the trade-off between rate of return and liquidity.
C) encourage people to hold more cash.
D) reduce the amount of liquidity in the economy.

Correct Answer: