The opportunity cost of holding money is:

Question

Quizplus · Accepted Answer

Opportunity cost is the cost of the best alternative foregone. Holding money means that the individual is not investing it in other assets that could have yielded a return. Therefore, the opportunity cost of holding money is the difference between the interest rates on the monetary assets (such as savings accounts) and those on non-monetary assets (such as stocks or bonds). Choice A is incorrect because holding money does have an opportunity cost. Choice B is incorrect because it only applies to those who use credit cards, which is not relevant to everyone. Choice D is incorrect because the bank rate is the rate at which central banks lend money to other banks and is not directly related to the opportunity cost of holding money.

The Opportunity Cost of Holding Money Is