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:

Improper Fractions

A fraction in which the top number exceeds the bottom number, indicating it represents a whole number plus a fraction.

Lowest Terms

A fraction displayed in its most reduced form, with both numerator and denominator shrunk to their smallest feasible values.

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A hot chili pepper used to flavor dishes, commonly ground into a powder and used as a spice.

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A competitive event where participants cook chili recipes and are judged to determine the best tasting chili.