In deciding how much money to hold,you should compare the
A)disadvantage of liquidity with the advantage of earning more interest
B)advantage of liquidity with the disadvantage of losing interest
C)disadvantage of storing wealth with the advantage of having a medium of exchange
D)advantage of storing wealth with the advantage of having a medium of exchange
E)advantage of liquidity with the disadvantage of storing wealth

Question

Quizplus · Accepted Answer

Holding money involves a trade-off between liquidity and the opportunity cost of foregone interest. The advantage of holding money is liquidity, which allows for quick and easy transactions. The disadvantage of holding too much money is the lost opportunity to earn interest on it. Therefore, the best choice is B, which weighs the advantage of liquidity against the disadvantage of losing interest.

In Deciding How Much Money to Hold,you Should Compare the