If the Real Rate of Return Is 5 Percent and the Inflation

question 141

Multiple Choice

If the real rate of return is 5 percent and the inflation rate is 2 percent, the nominal interest rate is:

• A) 7 percent.
• B) 3 percent.
• C) −3 percent.
• D) −7 percent.

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Definitions:

Federal Trade Commission

A U.S. federal agency established in 1914 to enforce antitrust laws and promote consumer protection.

Teapot Dome Scandal

A major political scandal in the 1920s involving the illegal leasing of federal oil reserves by the Secretary of the Interior, Albert B. Fall.

Government Oil Reserves

Strategic reserves of petroleum maintained by a government for use during crises and to safeguard against sudden supply disruptions.

Walter Lippmann

An influential American writer, reporter, and political commentator known for being one of the first to introduce the concept of the "cold war" and for his deep analyses of public affairs.