Assume That the Real Rate of Interest Is 5 Percent

question 43

Multiple Choice

Assume that the real rate of interest is 5 percent and a lender charges a nominal interest rate of 15 percent. If a borrower expects that the rate of inflation next year will be 10 percent and the actual rate of inflation next year is 10 percent,

• A) the lender benefits from inflation, while the borrower loses from inflation.
• B) the borrower benefits from inflation, while the lender loses from inflation.
• C) neither the borrower nor the lender benefits from inflation.
• D) both the borrower and the lender lose from inflation.

Understand the components and calculation of prime costs.

Differentiate between manufacturing and merchandising cost terminologies.

Identify and calculate conversion costs.

Recognize the flow of costs in manufacturing activities.

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Definitions:

Equilibrium Price

The cost at which the supply and demand for goods are exactly balanced in the market.

Fine

A sum of money required to be paid as a penalty for breaking the law or rules.

Supply Curve

A graphical representation showing the relationship between the price of a good and the quantity of the good that suppliers are willing to offer for sale.

Variable Costs

Expenses that vary directly with the level of production or output, such as raw materials and labor costs.