When the Actual Rate of Inflation Exceeds the Expected Rate

question 52

Multiple Choice

When the actual rate of inflation exceeds the expected rate

• A)the unemployment rate will temporarily rise.
• B)firms will experience rising profits and thus increase their employment.
• C)the actual rate of inflation will fall.
• D)nominal wages will decline.

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Definitions:

Expected-Rate-of-Return Curve

A graphical representation that illustrates the relationship between the expected return of an investment and its associated risk.

Interest-Rate Cost-of-Funds Curve

A curve that illustrates the relationship between the interest rates on loans or deposits and the total amount of funds borrowed or lent.

MB = MC Decision Framework

A decision-making process where an action is taken if the marginal benefit (MB) is equal to or greater than the marginal cost (MC).

Interest-Rate Cost-of-Funds Curve

A graphical representation displaying the relationship between interest rates and the total cost of funds to a lending institution.