Question

Identify the following as True or False:

1. If two short-term assets offer different interest rates, then investors will move their wealth towards the asset with the lower return.
2. There is no practical difference between long-term interest rates and short-term interest rates.
3. If long-term interest rates fall, new homeowners can afford more expensive homes.
4. Interest rates on financial assets that mature in ten months or less are long-term interest rates.
5. The opportunity cost of holding money falls when short-term interest rates fall.

Answer 1

Answer:

False, False, False, False, True

Explanation:

• If the short term assets offer diverse rates to the investors then the investor does not need to move their entire wealth to the assets with an ow returns and thus is false.  

• There is a difference between the long and the short terms interests rares and rates of return and hence is false.  

• The long terms lowering of the interest rates can increase the prices of the houses thereby making it difficult to afford the houses.  

• The opportunity costs of money fall when the short terms changes take place in the interest rates.