If Borrowers and Lenders Expect a Higher Rate of Inflation

question 58

Multiple Choice

If borrowers and lenders expect a higher rate of inflation,

• A)nominal interest rates should decrease.
• B)nominal interest rates should remain constant.
• C)nominal interest rates should increase.
• D)real interest rates should increase.

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Definitions:

Variable Costs

Costs that change in proportion to the level of production or sales, such as raw materials and direct labor.

Activity Level

A measurement of the volume of production or the quantity of services provided.

Activity Bases

Measures that assign costs to cost objects based on their use of activities; used in activity-based costing.

Mixed Cost

A cost consisting of both fixed and variable components and changes in response to variations in production or sales levels.