The Approximate Nominal Interest Rate Is Computed as the Real

question 2

Multiple Choice

The approximate nominal interest rate is computed as the real rate:

• A)minus the risk-free rate.
• B)minus the inflation rate.
• C)plus the risk-free rate.
• D)plus the inflation rate.
• E)divided by the inflation rate.

---

Definitions:

Fixed Prices

Prices that do not change in response to market fluctuations, often set by government regulation or by agreement between parties.

Total Spending

The aggregate amount of expenditure by all sectors of the economy, including households, businesses, government, and foreign buyers.

Larger Output

Production at a higher volume, often pursued to achieve economies of scale and reduce the average cost per unit.

Government Purchases

Expenditures by the government sector for goods and services that government consumes in providing public services and for public capital that has long-term usage.