In the textbook model, wealth is held in two forms: money and in bond funds. Which of the following statements are true?
I. Money and bond funds earn the same interest rates in a well functioning money market.
II. Money is a more liquid asset compared to bond funds.
III. Bond funds are interest earning assets while money generally is not.
IV. The difference between the interest rates paid on money deposits and the interest return available from bonds is the cost of holding money.

Question

In the textbook model, wealth is held in two forms: money and in bond funds. Which of the following statements are true? 
I. Money and bond funds earn the same interest rates in a well functioning money market.
II. Money is a more liquid asset compared to bond funds.
III. Bond funds are interest earning assets while money generally is not.
IV. The difference between the interest rates paid on money deposits and the interest return available from bonds is the cost of holding money.

Quizplus · Accepted Answer

Money is more liquid than bond funds, bond funds earn interest while money typically does not, and the interest rate difference is the cost of holding money.

In the Textbook Model, Wealth Is Held in Two Forms