In Year 1 the Price Level Is Constant and the Nominal

question 147

Multiple Choice

In year 1 the price level is constant and the nominal rate of interest is 10 percent. But in year 2 the inflation rate is 6 percent. If the real rate of interest is to remain at the same level in year 2 as it was in year 1, then in year 2 the nominal interest rate must

• A)rise by 16 percentage points.
• B)rise by 6 percentage points.
• C)fall by 6 percentage points.
• D)rise by 12 percentage points.

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Definitions:

Pizzas

A popular dish made from dough covered with tomato sauce, cheese, and various toppings, often baked in an oven.

Budget Constraint

The limit on the consumption bundles that a consumer can afford to purchase with a limited amount of income.

Submarine Sandwiches

A type of sandwich consisting of a long roll of bread filled with meats, cheese, vegetables, and condiments, also known as a sub, hoagie, hero, or grinder.

Pizzas

A popular dish of Italian origin consisting of a flat round base of dough baked with a topping of tomato sauce and cheese, typically with added meat, fish, or vegetables.