Which of the following statements is true if interest rates were zero?
A) The demand for bonds increases because bonds will be a more attractive alternative to money.
B) People will hold their wealth in the form of money rather than in bonds.
C) Bonds and money will become perfect substitutes since both are non-interest earning assets.
D) The supply of bonds will increase.

Question

Quizplus · Accepted Answer

If interest rates were zero, people would not earn any return on their investments in bonds. Therefore, bonds would be less attractive compared to holding money, which is risk-free and easily accessible. This would lead people to hold their wealth in the form of money rather than in bonds, reducing the demand for bonds. Thus, Choice B is the correct statement. Choices A, C, and D are incorrect in this scenario.

Which of the Following Statements Is True If Interest Rates