What term refers to the price of money, expressed as the amount charged for borrowing or paid on savings?

• A. Inflation
• B. Interest rate
• C. Tax rate
• D. Exchange rate

Answer: (B)

Interest rate is the price of money—the amount charged for borrowing or paid on savings. It represents the time value of money and the risk lenders take. When you borrow, you pay interest as the cost of using someone else’s funds; when you save, you earn interest as a return on your deposited money. For example, borrowing $200 at 6% interest costs about $12 each year, while saving $1,000 at 3% earns about $30 per year. Inflation describes rising prices, not the price of money itself. Tax rate is the percentage of income taken by the government, and the exchange rate shows how much one currency is worth in another. Because it directly expresses the cost or return on money over time, it best fits the description.