Suppose That the Nominal Interest Rate Is Constant and the Average

question 95

Multiple Choice

Suppose that the nominal interest rate is constant and the average price level begins to rise. Which of the following is most likely to happen?

• A) The real interest rate will fall.
• B) The level of national output will fall.
• C) The real interest rate will increase.
• D) The unemployment rate will increase.

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Definitions:

Capital Budget Committee

A capital budget committee is a group of individuals within an organization responsible for reviewing, approving, and overseeing large capital expenditures or investments.

Accounting Rate

The accounting rate refers to the percentage of return on an investment or project, as determined by accounting methods, which does not necessarily take into account the time value of money.

Cash Flows

The total sum of cash and cash-like assets moving into and out of a company.

Payback Method

An investment appraisal technique that calculates the time required to recover the initial investment from the cash inflows generated by the investment.