Comparing the Situation of a Nominal Interest Rate of 10

question 97

Multiple Choice

Comparing the situation of a nominal interest rate of 10 percent and an inflation rate of 9 percent with a nominal interest rate of 6 percent and inflation rate of 2 percent,consumers would borrow more in which situation?

• A)Nominal interest rate of 10 percent since real interest rate is 1 percent.
• B)Nominal interest rate of 6 percent since the real interest rate is 4 percent.
• C)Nominal interest rate of 10 percent since the real interest rate is 9 percent.
• D)Nominal interest rate of 6 percent since the real interest rate is 2 percent.

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Definitions:

Planning Budget

A budget prepared for a specific level of activity, used for planning and coordinating the financial resources of a company.

Activity Level

Refers to the volume of production or operations, often influencing costs and managerial decisions within a business.

Selling And Administrative Expenses

Expenses related to the selling of products or services and the general administration of a business, not including manufacturing costs.

Planning Budget

A budget designed for planning and strategic purposes, outlining expected revenues, expenses, and other financial activities.