If the Nominal Interest Rate Is 4 Percent and the Inflation

question 75

Multiple Choice

If the nominal interest rate is 4 percent and the inflation rate is 7 percent, then the real interest rate equals

• A) -3 percent.
• B) +3 percent.
• C) -4 percent.
• D) -7 percent.
• E) +11 percent.

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Definitions:

Savings

Money set aside from current income for future use, often to accumulate wealth or for specific future expenditures.

Monetarism

A school of thought that emphasizes the role of governments in controlling the amount of money in circulation to influence the economy.

Proponent

An advocate or supporter of a particular idea, policy, or project.

Monetarism

An economic theory which argues that the management of the economy should be primarily based upon adjustments to the monetary supply, by governmental policies.