What Interest Rate Should a Banker Charge for a Loan

question 13

Multiple Choice

What interest rate should a banker charge for a loan if she expects that the inflation rate will average about 2.4% over the length of the loan, but wants she a 3% real rate of return?

• A)7)2%
• B)5)4%
• C)3)0%
• D)2)4%
• E)0)6%

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Definitions:

Constant Returns To Scale

Long-run average total cost is constant as output increases.

Long-Run Average Total Cost

The average cost per unit of output when all inputs, including those typically fixed, are variable and optimized.

Variable Cost

Costs that vary directly with the level of production or output, such as materials and labor, in contrast to fixed costs, which remain constant regardless of output levels.

Long-Run Average Total Cost Curve

A graphical representation that shows the lowest cost at which a firm can produce any given level of output in the long run, when all inputs are variable.