If Expected Inflation Is Constant, Then When the Nominal Interest

question 198

Multiple Choice

If expected inflation is constant, then when the nominal interest rate increases, the real interest rate

• A) increases by more than the change in the nominal interest rate.
• B) increases by the change in the nominal interest rate.
• C) decreases by the change in the nominal interest rate.
• D) decreases by more than the change in the nominal interest rate.

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Definitions:

Risk Involved

The potential for losing something of value or the possibility of a negative outcome in a given decision or action.

Loan Interest

The cost paid by the borrower to the lender for the use of borrowed money, typically expressed as an annual percentage of the loan amount.

Loanable Funds

Refers to the funds available for borrowing in the financial markets, determined by the savings of households and organizations.

Public Debt

The total amount of money owed by the government to creditors, often as a result of borrowing to finance public spending.