If the Rate of Inflation Is 8 Percent and a Lender

question 68

Multiple Choice

If the rate of inflation is 8 percent and a lender receives $11,000 at the end of the year for a loan of $10,000,the real rate of interest is approximately ________ percent.

• A) 13
• B) 11
• C) 6
• D) 3
• E) 2

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Definitions:

Factor Price

The payment for the use of a factor of production, such as labor wages, rent for land, or interest for capital.

Production Function

A mathematical representation outlining how inputs are transformed into outputs in a production process.

Profit-maximizing

The business objective of achieving the highest possible profit from operations, achieved by balancing costs and revenues.

Factor Price

The payment received by a factor of production, for example, wages for labor, rent for land, or interest for capital.