Chapter 5R, Problem 1MCQ

To determine

The correct option that defines the interest rate.

Answer to Problem 1MCQ

Option b is correct.

Explanation of Solution

Explanation for the correct option:

b.

Interest rates can be defined as the percentage of the amount charged by the lender to the borrowers for letting borrowers use the lender’s savings. Therefore, option b is correct.

Explanation for incorrect options:

a.

The interest rate is the rate at which borrowers can borrow funds for creating their physical capital for further use. It is not the opportunity cost. Therefore, option a is incorrect.

c.

Percentage of the amount saved by the borrower refers to savings instead of interest rates. Therefore, option c is incorrect.

d.

Banks also pay interest rates to the depositors of saving accounts. But the bank pays the amount deposited by the account holder. Here, the bank is not the borrower. Therefore, option d is incorrect.

e.

Interest refers to the percentage of the amount lent to the borrowers for their use for certain period of time. Therefore, option e is incorrect.

Economics Concept Introduction

Interest rates: The rates that were charged by the investor who is ready to lend his/her money for a certain period of time to the borrower.