Suppose that you lend $1,000 to a friend and she pays you back one year later.What is the opportunity cost of lending the money?

Question

Quizplus · Accepted Answer

The opportunity cost of lending the money is the real interest rate that would have been earned on the money, as this represents the value of the next best alternative foregone by choosing to lend the money instead of using it for another purpose. The nominal interest rate does not take inflation into account, so it is not as accurate as the real interest rate for determining opportunity cost, while there is always an implicit cost associated with lending money, but it is not specific enough to be the best choice here.

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