The real rate of interest is
A. found by taking the nominal rate of interest and adding the actual rate of inflation.
B. equal to the nominal rate of interest plus the anticipated rate of inflation.
C. found by taking the nominal rate of interest and dividing it by the actual rate of inflation.
D. equal to the nominal rate of interest less the anticipated rate of inflation.
Answer: D
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People will want to buy fewer bonds and the interest rate will rise, as the price level
a) falls by more than 50 percent. b) falls by less than 50 percent. c) remains constant. d) rises.
The president wishes not only to increase spending for education by $4 billion but also to maintain a balanced budget. Therefore, taxes will also be increased by $4 billion. What will happen to GDP?
A. It will increase. B. It will remain the same. C. It will decrease. D. It’s impossible to know without the multiplier.