Suppose that you have had a one-hundred dollar bill hidden inside your mattress for the past year. Suppose also that at the beginning of the year, you could have instead used the hundred dollars to purchase a bond that would have given you a real return equal to 6% for the year. Based on this information, what is the opportunity cost of having held the one-hundred dollar bill as an asset instead of using it to purchase the bond?
ii. The asset demand for money varies with the interest rate. Does it vary directly or inversely?