If the Nominal Interest Rate Is 8

question 136

Multiple Choice

If the nominal interest rate is 8.25 percent and the inflation rate is 3 percent,the real interest rate is ________.

• A) 1.25 percent
• B) 2.75 percent
• C) 5.25 percent
• D) 11.25 percent

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Definitions:

Interest Rate

The percentage of a sum of money charged for its use, typically expressed as an annual percentage rate.

Demand for Loanable Funds

The desire to borrow money, driven by businesses and individuals who seek financing for investment, consumption, or other purposes, typically influenced by interest rates.

Unanticipated Inflation

Inflation that occurs when the actual rate of inflation exceeds the expected rate, often leading to distortions in economic decision-making and allocations.

Borrowers

are individuals, companies, or entities that take out loans from lenders with the obligation of repaying the borrowed amount plus interest or other charges.