If You Lend a Dollar for a Year and at the End

question 87

Multiple Choice

If you lend a dollar for a year and at the end of the year the price level has risen by 10 percent

• A) the purchasing power of your loan has risen over the year regardless of the interest rate at which you lent it.
• B) the purchasing power of your loan has remained constant over the year regardless of the interest rate at which you lent it.
• C) you must have earned a nominal interest rate of 10 percent to maintain the purchasing power of your loan.
• D) you must have earned a nominal interest rate of 5 percent to maintain the purchasing power of your loan.

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Definitions:

Total Investment

Total investment refers to the sum of all expenditures on capital goods by businesses and government within a specific time period.

Keynesian Range

A segment of the aggregate supply curve where output can increase without an increase in price levels, related to Keynesian economics theories.

Full Capacity

The maximum level of output that a company can sustain over a period without increasing long-term costs, often achieved by optimizing the use of resources.

Equilibrium GDP

The level of Gross Domestic Product where aggregate supply equals aggregate demand within an economy.