If Real Interest Is 2 Percent and the Expected Inflation

question 55

Multiple Choice

If real interest is 2 percent and the expected inflation rate is 5 percent,then the nominal interest rate is

• A)7 percent.
• B)3 percent.
• C)2.5 percent.
• D)0.4 percent.

---

Definitions:

Production Labor Wages

The total amount of compensation paid to employees directly involved in the production of goods or services.

Direct Cost

Costs that can be directly attributed to the production of a specific good or service, such as raw materials and labor directly involved in manufacturing.

Indirect Cost

Expenses that are not directly attributable to a specific product or service, often including overhead costs like utilities or rent.

Administrative Office Salaries

The wages and salaries paid to employees who work in administrative roles within an organization.