The Nominal Interest Rate Minus the Expected Rate of Inflation

question 99

Multiple Choice

The nominal interest rate minus the expected rate of inflation ________.

• A) defines the real rate of inflation
• B) is a worse measure of the incentives to borrow and lend than is the nominal interest rate
• C) is a more accurate indicator of the tightness of credit market conditions than is the nominal interest rate
• D) defines the bank rate

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Definitions:

Supply and Demand

Fundamental economic model that explains how the interaction between the quantity of a good or service available (supply) and the desire for it (demand) determines its price.

Consumers

Individuals or entities that purchase goods and services for personal use or consumption.

External Costs

Costs incurred as a result of an economic activity that affects third parties who did not choose to incur that cost.

Free Enterprise

An economic system where private businesses operate in competition, largely free of state control, with the prices of goods and services determined by the open market.