The opportunity cost of money holdings is:

A. The reduction in purchasing power brought on by deflation.

B. The alternative interest income foregone from not holding some other asset.

C. The liquidity foregone from not holding some other asset.

D. All of the above.

Question

Business

Abbie Bauer

18 May, 23:45

The opportunity cost of money holdings is:

A. The reduction in purchasing power brought on by deflation.

B. The alternative interest income foregone from not holding some other asset.

C. The liquidity foregone from not holding some other asset.

D. All of the above.

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Answers (1)

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Lennon · Answer 1

B. The alternative interest income foregone from not holding some other asset.

Explanation:

Opportunity cost is the value forgone by choosing one option over the other. It is the missed value of the next best alternative.

Interest foregone is the best alternative for holding cash. By keeping cash, one misses the chance to earn interest if they had invested it. Opportunity cost is a sacrificed benefit.

Reduction in purchasing power is a disadvantage. Money is the most liquid asset, holding it has no additional benefit in terms of liquidity.

The opportunity cost of money holdings is:A. The reduction in purchasing power brought on by deflation.B. The alternative interest income foregone from not holding some other asset.C. The liquidity foregone from not holding some other asset.D. All of the above.

The opportunity cost of money holdings is:

A. The reduction in purchasing power brought on by deflation.

B. The alternative interest income foregone from not holding some other asset.

C. The liquidity foregone from not holding some other asset.

D. All of the above.