If the real return on government bonds is 3 percent and the expected rate of inflation is 4 percent, then the cost of holding money is ______ percent.
A) 1
B) 3
C) 4
D) 7

Question

Quizplus · Accepted Answer

The cost of holding money is the opportunity cost of not investing it, which is the sum of the real return on government bonds (3 percent) and the expected rate of inflation (4 percent), totaling 7 percent.

If the Real Return on Government Bonds Is 3 Percent