Question

Select all of the following choices which explain why the public keeps some wealth in the form of money.

A. For investment security
B. To hold it as an asset
C. To accrue interest
D. To make purchases with it
E. To hold it as an asset

Answer 1

People keep wealth in the form of money to make purchases and hold it as a liquid asset, though it does not accrue interest in its physical form. It also provides investment security when kept in interest-bearing accounts offered by financial institutions.

Step-by-step explanation:

The public keeps some wealth in the form of money for several reasons. Money serves as an effective medium of exchange, making it easier to make purchases and facilitate economic transactions. People also hold money as an asset due to its liquidity—it can be quickly converted into other forms of assets or used for transactions without significant loss of value.

However, money typically does not accrue interest while held in its physical form, so holding it purely for interest accumulation is not accurate. On the other hand, financial institutions offer various types of accounts to consumer households, like savings accounts, that do accrue interest, providing investment security and the potential for capital appreciation.

These accounts, along with other investment options such as bonds or stocks, can form the basis of capital formation in an economy, where savings are allocated to their most productive uses considering factors like risk and expected rate of return.