Use the Following to Answer Questions: Table: Anticipating Inflation -(Table: Anticipating Inflation) Using the Inflation Data in the Table

question 253

Multiple Choice

Use the following to answer questions: Table: Anticipating Inflation $$\begin{array} { l c c } \hline \text { Year } & \text { Predicted Inflation Rate } & \text { Actual Inflation Rate } \\\hline 2000 & 3 \% & 3 \% \\2001 & 3 \% & 2 \% \\2002 & 7 \% & 9 \% \\2003 & 5 \% & 4 \% \\2004 & 4 \% & 7 \% \\\hline\end{array}$$
-(Table: Anticipating Inflation) Using the inflation data in the table above, assume that all loan contracts have fixed nominal interest rates of 10% and mature after 1 year. In which year did lenders receive exactly the amount of real interest they expected?

• A) 2000
• B) 2002
• C) 2003
• D) 2004

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Definitions:

Nonmonetary Exchange

A transaction in which businesses or individuals trade goods or services without the use of money.

Common Stock

A form of corporate equity ownership, representing a claim on a portion of a company's profits and a right to vote on management issues.

Stock Split

An action a company takes to divide its existing stock into multiple shares to boost the liquidity of the shares.

Market Value

The price at which an asset would trade in a competitive auction setting, reflecting the current value assigned by the market.