The Inflation Rate Is 3

question 37

Multiple Choice

The inflation rate is 3.5% a year, and the real interest rate is 2% a year. If a project will provide a perpetual real cash flow of $1,000 a year, what is the project's value?

• A)$50,000
• B)$17,953
• C)$9,804
• D)$10,101

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Definitions:

Corn-Based Ethanol

An alternative fuel derived from fermenting and distilling starch crops like corn, used primarily to reduce petroleum use, decrease greenhouse gas emissions, and promote agricultural jobs.

Production

The process of creating goods or services.

Demand for Corn

The total quantity of corn that buyers are willing and able to purchase at various prices within a given time period.

Surplus Supply

Occurs when the quantity of a good or service supplied is greater than the quantity demanded at a given price.