If the Real Interest Rate Declines by 1 Percent and the Inflation

question 59

Multiple Choice

If the real interest rate declines by 1 percent and the inflation rate increases by 2 percent, the nominal interest rate implied by the Fisher equation:

• A)increases by 2 percent.
• B)increases by 1 percent.
• C)remains constant.
• D)decreases by 1 percent.

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Definitions:

Present Value

The current valuation of a future sum or ongoing cash flows, given a specified rate of interest.

Sales-type Lease

A lease agreement where the lessor recognizes immediate profits on the sale of an asset while retaining its ownership.

Interest Revenue

Income that a company receives from its investments in bonds, loans, or other instruments that earn interest.

Rent Revenue

Income received from leasing out property or equipment.