Question

we measure the opportunity cost of holding money with?

chapter 16, survey of economlcs 7th edition

Answer 1

Ans.)

The opportunity cost of holding money refers to the amount foregone that could have rather been earned if invested somewhere or kept in the bank.

Interest rate (nominal interest rate) is the most common measure of the opportunity cost of holding money.For example, if an amount has been invested in bonds or kept in the savings bank in the account, then the individual earns some interest rate.

If an individual does not invest money anywhere and just hold it in hand for transaction purpose, then he does not earn any interest rate.This foregone interest rate is the opportunity cost of holding money.