In the Long Run, the Real Interest Rate Is 3

question 15

Multiple Choice

In the long run, the real interest rate is 3 percent, real GDP grows at 4 percent, velocity is constant, and the quantity of money grows at 6 percent.The nominal interest rate is

• A) 3 percent.
• B) 4 percent.
• C) 5 percent.
• D) 10 percent.
• E) 6 percent.

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Definitions:

Amortization Period

The length of time it takes to pay off a loan or mortgage in full with regular payments that cover both principal and interest.

Compounded Monthly

A method of calculating interest where the interest earned each month is added to the principal, so the balance doesn't merely grow; it grows at an increasing rate.

Interest Rate

The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.

Loan

Money that is borrowed, typically from a bank or financial institution, that is expected to be paid back with interest.