MGEA06H3 Lecture Notes - Market Liquidity, Soo Line Railroad, Shortage

• School: UTSC
• Department: Economics for Management Studies
• Course: MGEA06H3
• Professor: Iris Au

Document Summary

The cost of holding money and the demand for money. The relationship between bond prices and interest rates. The inverse relationship between interest rate and investment a revisit. The relationship between money supply, interest rate, and investment. N money is the most liquid asset in our economy, an asset is said to be very liquid if it can easily be converted into goods and services (i. e. , easy to buy stuffs). N obviously, there are other ways to store value (i. e. , hold our wealth in other forms of assets) that are not so liquid: examples of illiquid assets include real estate, cars and etc. In economics, the phrase we have a lot of money means we have chosen to hold a larger portion of our wealth in the form of liquid asset. For everyone else, the phrase we have a lot of money means we are wealthy. N answer: the opportunity cost of holding money is the interest rate.