The fundamental factors that affect the cost of money include
A) production opportunities
B) inflation
C) risk
D) time preference for consumption
E) all of the above

Question

Quizplus · Accepted Answer

All of the options listed (production opportunities, inflation, risk, and time preference for consumption) can contribute to changes in the cost of money. Production opportunities refer to the potential returns that investors could receive from alternative investment opportunities, which can impact the demand for and supply of money. Inflation can influence the cost of money because borrowers may demand higher interest rates to offset the effect of inflation on the value of future payments. Risk may impact the cost of money due to the perceived default risk of the borrower, which could lead to a higher interest rate. Finally, time preference for consumption refers to the desire by many individuals to have goods and services now rather than later, which could influence the interest rate.

The Fundamental Factors That Affect the Cost of Money Include