Suppose the Interest Rate Is Zero and the Public Expects

question 88

Multiple Choice

Suppose the interest rate is zero and the public expects the price level to fall by 2%. Which of the following statement is true?

• A) The value of money falls by 2%.
• B) Money becomes an interest earning asset; it earns a nominal interest rate of 2%.
• C) Money becomes an interest earning asset; it earns a real interest rate of 2%.
• D) Bonds and money will become perfect substitutes since both are non-interest earning assets.

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Definitions:

Financial Manager

A professional responsible for managing the financial health of an organization by developing strategies and plans for the long-term financial goals of their organization.

Accounting System

A structured process of collecting, recording, summarizing, and reporting financial transactions to oversee a company's financial health.

Operating Budgets

Detailed projections of income and expenses associated with the daily operations of a company over a specific period.

Financial Control

The management of a company's expenses, income, and assets in order to increase profitability and ensure stability and compliance with financial regulations.