If a Lender Wants to Earn a Real Interest Rate

question 108

Multiple Choice

If a lender wants to earn a real interest rate of 3% and expects inflation to be 3%, he/she should charge a nominal interest rate that:

• A) is at least 7%.
• B) is anything above 0%.
• C) equals the real rate desired plus expected inflation.
• D) equals the real rate desired less expected inflation.

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Definitions:

Retroactive Interference

Retroactive interference occurs when newly learned information interferes with the recall of previously learned information.

Encoding Specificity

The principle that suggests how we encode information into memory is specific to the context in which it is learned and that this encoding specificity affects how it is recalled.

Retrieval Cues

Specific stimuli or prompts that aid the recall of information stored in long-term memory, enhancing the ability to retrieve previously learned material.

Actor-observer Effect

The inclination to ascribe personal actions to external factors, while assigning the actions of others to their inherent traits.