Initially, the Nominal Rate of Interest Is 8 Percent and Inflation

question 139

Multiple Choice

Initially, the nominal rate of interest is 8 percent and inflation is 4 percent. The nominal interest rate then rises to 12 percent and the inflation rate to 8 percent. It follows that the real rate of interest has

• A) fallen.
• B) remained the same.
• C) risen to 8 percent.
• D) risen to 10 percent.

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Definitions:

Capital Projects

Long-term investments made by companies or governments to create, improve, or maintain physical assets.

Interest Rate

The percentage charged by a lender to a borrower for the use of assets, typically expressed as an annual percentage of the principal.

Present Value

The present value of a future amount of money or a series of cash flows, calculated using a predetermined rate of return.

$1

Symbolizes a unit of currency, typically referring to one dollar in jurisdictions using dollar-denominated currencies.