If the Nominal Interest Rate Is 2

question 13

Multiple Choice

If the nominal interest rate is 2.9 percent and the rate of inflation is 0.6 percent in a given year,then what is the corresponding real rate of return?

• A)3.5 percent
• B)2.3 percent
• C)-3.5 percent
• D)None of the above.

---

Definitions:

Ideal Cost-Of-Living Index

A theoretical measure representing the change in the amount of money needed to maintain a certain standard of living.

Utility

A measure of satisfaction or happiness that a consumer receives from consuming goods and services.

Current Prices

Prices at which goods and services are sold in the market at the present time, not adjusted for inflation or other factors that affect purchasing power.

Base-Year Prices

Prices from a specific base year that are used to calculate real values or quantities, allowing for the comparison of economic data over time by removing the effects of inflation.