If You Agree to a Long-Term Loan at a Specified

question 85

Multiple Choice

If you agree to a long-term loan at a specified nominal rate of interest and inflation turns out to be higher than was anticipated,

• A) the nominal rate of interest falls.
• B) the nominal rate of interest rises.
• C) the real rate of interest falls.
• D) the real rate of interest rises.

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Definitions:

Quantity Demanded

The total amount of a good or service that consumers are willing and able to purchase at a given price, holding all else constant.

Consumer Price Index

A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care, typically used to assess inflation.

Inflation Rate

The growth rate in the common price range for goods and services, downgrading the practical purchasing scope.

Money Supply

The aggregate financial assets at a specific time in an economy.