If the Nominal Interest Rate Is 8 Percent and the Inflation

question 54

Multiple Choice

If the nominal interest rate is 8 percent and the inflation rate is 2 percent, the real interest rate is approximately

• A) 4 percent.
• B) 6 percent.
• C) 0.25 percent.
• D) 10 percent.

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Definitions:

Depreciation

A fall in the price of a nation’s currency relative to foreign currencies.

Depreciation

The process of allocating the cost of a tangible or physical asset over its useful life, reflecting wear and tear or obsolescence.

Imports

Goods and services purchased by a country from other countries.

Exports

Goods or services produced domestically and sold to buyers in another country.