You Lend a Friend $10,000 for a Year

question 44

Multiple Choice

You lend a friend $10,000 for a year. At the end of the year your friend agrees to pay you $10,700. The interest rate on this loan is

• A) 0.07%.
• B) 7.00%
• C) 107%.
• D) indeterminate from this information.

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Definitions:

Contract Curve

The contract curve represents a set of efficient allocations in the Edgeworth Box, where no participant could be made better off without making another participant worse off.

Pareto Optimal

A condition or situation in which it is impossible to make one party better off without making another party worse off, reflecting an optimal distribution of resources.

Initial Endowment

In economic theory, refers to the initial quantities of various assets or goods that an individual or entity possesses.

Competitive Equilibrium

A market state where supply equals demand, and no economic actors have the incentive to change their behavior.