Question

Suppose that you lend $1,000 to a friend and he or she pays you back one year later. What is the opportunity cost of lending the money? the real interest rate that would have been earned on the money the implicit cost of the money the nominal interest rate that would have been earned on the money There is no cost.

Answer 1

Answer:

The nominal interest rate that would have been earned on the money

Explanation:

Opportunity cost or implicit cost is the cost of the option forgone when one alternative is chosen over other alternatives.

If i lend a friend money, i would be forgoing earning interest on my money. This is my opportunity cost. Interest earned is nominal interest

Nominal Interest = Real interest rate + inflation rate