The following represent the opportunity cost of holding money, EXCEPT:

Question

Question

This question was previously asked in

SSC CHSL Exam 2023 Tier-I Official Paper (Held On: 11 Aug, 2023 Shift 3)

loss of utility from goods that could have been purchased from the same amount of money
loss of interest earning on cash holdings
loss of purchasing power of money due to inflation
transaction cost in withdrawing money

Answer 1

The correct answer is transaction cost in withdrawing money. Key Points

Opportunity cost is the cost of the next best alternative forgone in order to pursue a certain action.
Holding money also has an opportunity cost, which is the loss of potential benefits that could have been obtained by using that money for something else.
Transaction costs are the expenses incurred in buying or selling goods or services and are not related to the opportunity cost of holding money.

Additional Information

Loss of utility from goods that could have been purchased with the same amount of money is a common opportunity cost of holding money.
- This is because money can only provide utility when it is used to purchase goods or services that satisfy a need or want.
Loss of interest-earning on cash holdings is another opportunity cost of holding money.
- This is because money that is held in cash does not generate any returns, unlike money that is invested in stocks, bonds, or other financial instruments.
Loss of purchasing power of money due to inflation is also a significant opportunity cost of holding money.
- Inflation reduces the value of money over time, making it less valuable in terms of the goods and services it can purchase.