Question

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. Money demand is affected by short-term interest rates and not long-term interest rates.
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

1. False, investor will move their wealth towards the asset that offers the highest returns.
2. False, a long term interest rate refers to the interest yielded by a security that has a maturity date longer than one year, while short term interest rate applies to the interest yielded by a security with a maturity date shorter than one year.
3. True
4. False, a long term interest rate refers to the interest yielded by a security that has a maturity date longer than one year.
5. True