When the price level is rising at ______ and the real interest rate is 1 per-cent a year, the nominal interest rate is 3 percent a year
A. 4 percent a year
B. 3 percent a year
C. 2 percent a year
D. 1 percent a year
C The nominal interest rate equals the real interest rate plus the inflation rate, so if the nominal interest rate is 3 percent a year and the real interest rate is 1 percent a year, the inflation rate must be 2 percent a year.
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Suppose that one year ago you purchased a $1,000 bond with an interest payment of $40 per year and, at the time, the interest rate was 4 percent. One year later the interest rate on bonds has increased to 5 percent, and you still hold the bond you purchased a year ago. If you were to sell your bond now, the price that you could sell it for would be
A) higher than it was when you bought it. B) lower than it was when you bought it. C) the same as it was when you bought it, that is, $1,000. D) lower or higher than it was when you bought it, but we cannot determine which.
You are trying to decide whether to purchase the latest Harry Potter book online or borrow it from the library. There is no charge for borrowing a book from the library, but going to the library takes more time than ordering a book online. Regardless of how you get the book, its benefit to you is the same. If the cost of buying the book online is $13, then you should:
A. borrow the book from the library if the cost of doing so (in terms of the extra time it takes) is greater than $13. B. borrow the book from the library if the cost of doing so (in terms of the extra time it takes) is less than $13. C. borrow the book from the library because you can get it from the library for free. D. buy the book online because it takes less time.