Question

The opportunity cost of holding money:


is zero because money is not an economic resource


varies inversely with the interest rate


varies directly with the interest rate


varies inversely with the level of economic activity

Answer 1

The opportunity cost of holding money:

**varies directly with the interest rate.**

This means that as interest rates increase, the opportunity cost of holding money also increases because you are forgoing the potential interest income you could have earned if you had invested that money instead. Conversely, when interest rates are low, the opportunity cost of holding money is lower.