If during 2016 the interest rate on one-month Treasury bills was 2.5% and during 2017 it was 2%, the opportunity cost of holding money, assuming the inflation rate remained constant,:
A) decreased.
B) became negative.
C) increased.
D) did not change.

Question

Quizplus · Accepted Answer

The opportunity cost of holding money is the interest foregone by not investing it. When the interest rate decreases from 2.5% to 2%, the opportunity cost of holding money decreases because the foregone interest is lower.

If During 2016 the Interest Rate on One-Month Treasury Bills