If you are a banker, should you consider the nominal or real interest rate when deciding which rate to charge for a loan? Explain.
What will be an ideal response?
The real interest rate is the inflation-adjusted interest rate, and this is the rate you should consider. It is calculated as the nominal rate of interest minus the expected rate of inflation. Depending on the level of inflation, you could actually earn a negative real interest rate by lending money at an interest rate less than the rate of inflation. The dollars you would receive when the loan was repaid would have less purchasing power than when the loan was made. This would not be a good business deal for a banker.
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Suppose a price searcher faces the following demand curve: At $100, $90, $80, $70, and $60, the quantity demanded is 1, 2, 3, 4, and 5 units respectively. Which statement below is true?
A) Total revenue is $100. B) Total revenue is $190 when 2 units are sold. C) Total revenue is $400 when 5 units are sold. D) Marginal revenue is $80 when the price is $90.
Which of the following events did not contribute to the high rate of bank failures in the 1980s and 1990s?
a. The collapse of the communist world, principally Russia; because of the collapse,they could not pay off their loans to U.S. banks b. Falling farm prices in the U.S. c. Bad loans to Mexico d. An unexpected slide in oil prices e. Falling agricultural land values