Answer to Question #317632 in Macroeconomics for qorshe

Question

4. You win $100 in a basketball poo. You have

a choice between spending the money now or

putting it away for a year in a bank account

that pays 5 percent interest. What is the oppor-

tunity cost of spending the $100 now? ANoLW

Answer 1

Simple interest is calculated as

$Interest= p×r×t$

Where p is the amount to be kept in the bank

r is the interest rate, 5%

t is the time, 1

$Interest=\$100×5\%×1$

$Interest=\$5$

The opportunity cost of spending the money now is the interest to be earned on the money kept on the bank which is $5