The Higher the Expected Inflation,_____

question 97

Multiple Choice

The higher the expected inflation,_____.

• A)the higher the nominal rate of interest that lenders require and that borrowers are willing to pay
• B)the lower the nominal rate of interest that lenders require and that borrowers are willing to pay
• C)the higher the nominal rate of interest that lenders require and the lower the nominal rate of interest that borrowers are willing to pay
• D)the higher the real interest rate that lenders require
• E)the higher the real interest rate that borrowers are willing to pay

---

Definitions:

Capital Market Line

A theoretical line used in the capital asset pricing model to illustrate the risk versus return trade-off for efficient portfolios.

Risk-Free Rate

The theoretical rate of return on an investment with no risk of financial loss, typically represented by government bonds.

Standard Deviation

A statistical measure of the dispersion or variability in a dataset, commonly used in finance to measure the volatility or risk associated with a particular investment.

Optimal

Referring to the most favorable or advantageous condition or level.