Suppose the Current Real Interest Rate Is 4 Percent and the Equilibrium

question 80

Multiple Choice

Suppose the current real interest rate is 4 percent and the equilibrium real interest rate is 3 percent. Then

• A) prices rise and inflation occurs.
• B) there is a surplus of loanable funds.
• C) there is a shortage of loanable funds.
• D) there is neither a shortage nor surplus of loanable funds.

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Definitions:

Normal Goods

Normal goods are goods whose demand increases when consumer income rises, and decreases when consumer income falls, opposite to inferior goods.

Perfect Substitutes

Goods that can completely replace each other in consumption, resulting in consumers being indifferent to which product they consume.

Income Elasticity

A measure of how the demand for a good or service changes with a change in the consumer's income.

Bagels

A type of bread product originating from the Jewish communities in Poland, known for their dense, chewy texture and hole-in-the-center shape.