Which of the following represents the opportunity cost of holding money?

Question

Quizplus · Accepted Answer

The opportunity cost of holding money is the interest rate that could have been earned if the money was invested or deposited in a savings account. Choosing option A, liquidity, is incorrect because liquidity is the ability to access and convert assets into cash quickly, while holding money is an example of liquidity. Choosing option C, the rate of inflation, is incorrect because inflation affects the purchasing power of money over time, but it is not an opportunity cost of holding money itself. Option D, none of the above, is incorrect as well because holding money has an opportunity cost – the foregone interest that could have been earned.

Which of the Following Represents the Opportunity Cost of Holding