When the Inflation Rate Is Positive, the

question 24

Multiple Choice

When the inflation rate is positive, the

• A) nominal interest rate is zero.
• B) real interest rate is less than the nominal interest rate.
• C) real interest rate is greater than the nominal interest rate.
• D) real interest rate equals the nominal interest rate.

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Definitions:

Income Elasticity

A measure of how much the demand for a good or service changes in response to changes in consumer income.

Demand Increase

A situation where the quantity of a product or service that consumers are willing and able to buy at a given price rises.

Price Elasticity

The sensitivity measure of demand for a good relative to its price changes.

Demand Curve

It illustrates the relationship between the price of a good or service and the quantity demanded for a given period, assuming all other factors are constant (ceteris paribus).