Tony Lent Dave $1,000 for One Year with the Understanding

question 26

Multiple Choice

Tony lent Dave $1,000 for one year with the understanding that Dave would repay $1,070.If the actual inflation rate was 7 percent,what was the real rate of interest Tony received?

• A)14 percent
• B)7 percent
• C)4 percent
• D)0 percent
• E)-7 percent

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Definitions:

Disguised Subsidy

Financial support given to industries or businesses in indirect ways, not easily identifiable as traditional subsidies, to lower their costs or increase their competitiveness.

Consumer Surplus

The gap between the total sum consumers are prepared and financially able to spend on a good or service and the sum they actually spend.

Legal

Pertaining to or conforming to the laws of a country or the legality of a situation or activity.

Efficient Output Level

The quantity of output at which a firm's average total cost is minimized.