Suppose That the Nominal Interest Rate Is 7 Percent and the Expected

question 41

Multiple Choice

Suppose that the nominal interest rate is 7 percent and the expected inflation rate is 3 percent. What happens with the value of savings?

• A) The dollar value of savings increases by 11 percent, and the value of savings measured in goods is expected to increase by 3 percent.
• B) The dollar value of savings increases by 11 percent, and the value of savings measured in goods is expected to increase by 4 percent.
• C) The dollar value of savings increases by 7 percent, and the value of savings measured in goods is expected to increase by 4 percent.
• D) The dollar value of savings increases by 7 percent, and the value of savings measured in goods is expected to increase by 3 percent.

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Definitions:

Multiple-choice Questions

A test format that presents a question followed by several possible answers, only one of which is correct.

80% Chance

A probability statement indicating that an event is likely to occur 80 times out of 100, or 80% of the time.

Simulation

The process of modeling a real-world situation or system over time, often using computer software to predict outcomes under various conditions.

5-card Hands

A combination of five cards usually dealt from a standard deck in card games, where different combinations have varying ranks.