When Borrowing Money to Purchase an Automobile,Raul Has the Choice

question 125

Multiple Choice

When borrowing money to purchase an automobile,Raul has the choice between a fixed nominal interest rate or adjustable nominal interest rate loan.Typically the adjustable rate loans start with a lower rate than the fixed rate loans.Given that,under what circumstances would Raul most likely want to borrow money at the higher fixed rate?

• A) When he expects the inflation rate to rise
• B) When he expects the inflation rate to decrease
• C) When he expects the inflation rate to remain unchanged
• D) When he expects the price level to remain stable
• E) When he expects the government to act to lower the inflation rate

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Definitions:

Peg-word System

A mnemonic device that associates numbers with items that rhyme with or resemble the numbers to aid in memory.

Visual Encoding

The process by which visual sensory information is encoded for memory and later retrieval.

Automatic Processing

A cognitive process that requires little effort or conscious attention, typically allowing the mind to perform tasks without actively thinking about them.

Effortful Processing

The voluntary and conscious encoding of information that requires attention and effort.