Let the Expected Rate of Inflation Equal 10 Percent and the Corresponding

question 5

Multiple Choice

Let the expected rate of inflation equal 10 percent and the corresponding nominal rate of interest be 15 percent. If the rate of depreciation were 10 percent and the price of a piece of capital $10,000, then an entrepreneur charging the appropriate rental price of capital

• A) would earn an extra 2 percent in real return if actual inflation were 8 percent instead of 10%.
• B) would earn the same 5 percent real return regardless of what actual inflation happened to be.
• C) would earn 17 percent in real return if actual inflation were 8 percent instead of 10 percent.
• D) would earn something less than 5 percent if actual inflation were 8 percent instead of the anticipated 10 percent.
• E) none of the above.

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Definitions:

Habitat Degradation

The process by which a natural habitat becomes incapable of supporting its native species due to environmental pressures or human activities.

Maximum Sustained Yield

The largest yield or catch that can be taken from a species' stock over an indefinite period without causing stock depletion.

Commercially Valuable Stocks

Investments or goods that have significant market value and the potential to generate profit.

Turtle Exclusion Devices

Specialized equipment installed on fishing nets to allow turtles to escape and thus minimize bycatch in marine fisheries.