If during 2016 the interest rate on 1-month Treasury bills was 2.5% and during 2017 it was 2%,the opportunity cost of holding money,assuming the inflation rate remained constant,:

Question

Quizplus · Accepted Answer

Opportunity cost is the return foregone on the next best alternative. In this case, the next best alternative is investing in Treasury bills. The interest rate on Treasury bills has decreased from 2.5% to 2% during 2017, which means the return on investment has decreased. Hence, the opportunity cost of holding money has decreased.

If During 2016 the Interest Rate on 1-Month Treasury Bills