When There Is High Inflation

question 19

Multiple Choice

When there is high inflation

• A)the nominal interest rate is always greater than the real interest rate.
• B)interest rates fall due to government policy.
• C)the real interest rate is always negative.
• D)the nominal interest rate is approximately equal to the real interest rate.
• E)the real interest rate is always greater than the nominal interest rate.

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Definitions:

Discounted Note

A promissory note whose proceeds are issued at a price lower than its face value, with the difference compensating the lender for risk.

360-Day Year

An accounting convention that simplifies interest calculation by assuming all months have 30 days, resulting in a 360-day year.

Interest Charged

The cost incurred for borrowing money or the amount earned on deposited funds, usually expressed as a percentage of the principal.

Contingent Liability

A potential financial obligation that may arise depending on the outcome of a future event.