Money paid regularly for the ability to borrow or lend money is known as what?

• A. Immigrant
• B. Interest
• C. Industrialization
• D. Isolationism

Answer: (B)

Interest is the price paid for using someone else’s money. It exists because money has time value—the value of money today is greater than money received later. When you borrow, you repay the amount borrowed (the principal) plus interest, which compensates the lender for the cost and risk of lending. If you lend money, you earn interest in return for letting someone else use your funds. The rate is usually expressed as a percentage and can be simple or compounded over time. For example, borrowing $100 at 5% interest costs about $5 in interest for one year (not accounting for compounding). Terms like immigrant, industrialization, or isolationism don’t describe payments for borrowing or lending money.