As the prevailing interest rate decreases, the opportunity cost of money
A) Increases for both lender and borrower.
B) Increases for the borrower and decreases for the lender.
C) Decreases for both lender and borrower.
D) Decreases for the borrower and increases for the lender.

Question

Quizplus · Accepted Answer

The opportunity cost of money refers to the benefits foregone by choosing one investment over another. As the prevailing interest rate decreases, the potential returns from lending or investing money decrease for both the lender and the borrower, thus reducing the opportunity cost of holding or using money for both parties.

As the Prevailing Interest Rate Decreases, the Opportunity Cost of Money