Let: (1)Pt Be the Price of One Unit of a Market

question 83

Multiple Choice

Let: (1) Pt be the price of one unit of a market basket of goods (i.e.,a composite commodity) in year t; (2) P^et ₊ ₁ be the expected price of one unit of a market basket of goods in year t + 1; (3) π^et ₊ ₁ be the expected rate of inflation between period t and t + 1; and (4) it be the one-year nominal interest rate.Suppose an individual borrows the equivalent of one unit of a composite commodity today.Given this information,which of the following expressions represents (i.e.,is equal to) the real interest rate (rt) ?

• A)(1 + it)(P^et₊₁)/ (Pt)
• B)(1 + π^et₊₁)/ (1 + it)
• C){(1 + π^et₊₁)/ (1 + it)} - 1
• D){(1 + it)(Pt)/ (P^et₊₁)} - 1
• E) none of the above

---

Definitions:

Procedural

Procedural refers to a type of memory responsible for knowing how to perform tasks and skills, often carried out without conscious awareness.

Semantic

Pertaining to meaning in language or logic, often dealing with the relationships between signs and symbols and what they represent.

Episodic Memory

refers to the ability to recall specific events, situations, or experiences from an individual's past, complete with contextual details.

Concepts

Abstract ideas or mental symbols that represent phenomena, objects, or conditions, forming the basic building blocks of thoughts and beliefs.