Suppose That the Nominal Interest Rate Is 5 Percent and the Expected

question 103

Multiple Choice

Suppose that the nominal interest rate is 5 percent and the expected inflation rate is 3 percent. What happens with the value of savings?

• A)The dollar value of savings increases by 8 percent and the value of savings measured in goods is expected to increase by 3 percent.
• B)The dollar value of savings increases by 8 percent and the value of savings measured in goods is expected to increase by 5 percent.
• C)The dollar value of savings increases by 5 percent and the value of savings in goods is expected to increase by 2 percent.
• D)The dollar value of savings increases by 5 percent and the value of savings in goods is expected to increase by 3 percent.
• E)The dollar value of savings increases by 2 percent and the value of savings measured in goods is expected to increase by 5 percent.

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Definitions:

Risks

The potential for losing something of value, which can be financial, physical, emotional, or otherwise, as a result of actions taken or events that occur.

Ownership

The state or fact of exclusive rights and control over property, which can be an object, land/real estate, intellectual property, or some form of rights to assets.

Benefits

Forms of value, other than payment, provided to employees in return for their contribution to the organization, such as healthcare, pensions, and leave entitlements.

Income Statement

A financial statement that shows a company's revenues and expenses over a specific period of time, ultimately presenting the net profit or loss.