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

question 68

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

---

Definitions:

Liquidated

Refers to the process of converting assets into cash or using them to pay off liabilities, often in the context of dissolving a business or settling debts.