If You Lend a Dollar for a Year and at the End

question 45

Multiple Choice

If you lend a dollar for a year and at the end of the year the price level has risen by 10 percent,

• A) you must have earned a nominal interest rate of 10 percent to maintain the purchasing power of your loan.
• B) the purchasing power of your loan has risen over the year regardless of the interest rate at which you lent it.
• C) you must have earned a nominal interest rate of 5 percent to maintain the purchasing power of your loan.
• D) the purchasing power of your loan has remained constant over the year regardless of the interest rate at which you lent it.

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Definitions:

Physiological Response

Automatic reactions of the body to internal or external stimuli, often as part of the survival and stress responses.

Behavioral Response

A reaction of an individual to a stimulus or an environment, often assessed in psychological contexts.

Conscious Experience

The subjective awareness of one's thoughts, feelings, and environment, including sensory perception and self-awareness.

James-Lange Theory

The theory that emotions are the result of physiological reactions to external events.