Suppose that you lend $1,000 to a friend and he or she pays you back one year later. What is the opportunity cost of lending the money?
A) There is no cost.
B) the real interest rate that would have been earned on the money
C) the nominal interest rate that would have been earned on the money
D) the implicit cost of the money

Question

Quizplus · Accepted Answer

The opportunity cost of lending money is the amount that could have been earned if the money was used in some other investment. Thus, the best choice is B, the real interest rate that would have been earned on the money. This reflects the actual return that could have been earned after accounting for inflation.

Suppose That You Lend $1,000 to a Friend and He