Interest Rate Changes Have an Important Side Effect on the Economy

question 3

Multiple Choice

Interest rate changes have an important side effect on the economy since even a small change in interest rates can significantly change

• A)the composition of output demanded
• B)the level of private saving
• C)the level of consumption
• D)the level of government spending
• E)none of the above

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Definitions:

Return

Total monetary flow of an asset as a fraction of its price.

Investment

The action or process of allocating resources, usually money, with the expectation of generating an income or profit.

Real Discount Rate

The rate used to discount future cash flows to their present value, adjusting for inflation.

Nominal Discount Rate

The rate of interest quoted or advertised on a loan or investment, not adjusted for inflation.