Figure 13-4

question 180

Multiple Choice

Figure 13-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars.
-Refer to Figure 13-4. If the equilibrium quantity of loanable funds is $56 billion and if the rate of inflation is 4 percent, then the equilibrium real interest rate is

• A)lower than 6 percent..
• B)6 percent.
• C)between 6 percent and 8 percent.
• D)higher than 8 percent.

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Definitions:

Contract Rate

It is the interest rate stated in a contract, such as a loan or lease agreement.

Non-interest-bearing Notes

Debt instruments that do not accrue interest over time, thus repaid at their face value.

Incremental Borrowing Rate

The interest rate a lessee would have to pay to borrow over a similar term the funds necessary to purchase or lease an asset.