The Real Interest Rate Is

question 61

Multiple Choice

The real interest rate is

• A)equal to the rate of inflation minus the nominal rate of interest.
• B)the market interest rate.
• C)equal to the nominal rate of interest minus the rate of inflation.
• D)less important for decision making than the nominal rate of interest.
• E)always equal to the pure rate of time preference.

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Definitions:

Involuntary Conversion

The forced exchange of an asset into a different form or property, often due to theft, casualty or condemnation, with potential tax implications.

Deferred Gain

A profit from the sale of property or an investment that has been realized but not recognized for tax purposes in the current period.

IRC Section 121

A provision in the Internal Revenue Code that allows homeowners to exclude up to $250,000 ($500,000 if married filing jointly) of capital gains on the sale of their primary residence, subject to certain conditions.

Receipt of Boot

Tax term referring to non-like-kind property or cash received in an exchange, which may trigger taxable gain.