A Consumption-Based Theory of the Determination of the Real Interest

question 17

Multiple Choice

A consumption-based theory of the determination of the real interest rate is based on the assumption that:​

• A)​a rise in the real interest rate will increase current consumption.
• B)​the real interest rate must adjust to make people willing to experience changing consumption levels over time.
• C)​the real interest rate is determined by the supply and demand for investment and is therefore unaffected by consumption decisions.
• D)the real interest rate must be positive.

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Definitions:

Field Warehouse

A storage facility that is used to store goods that are under the control of a financing company until the loan secured by those goods is repaid.

Loan Against Inventory

A type of financing where a loan is given to a company based on the value of its inventory which serves as collateral.

Line of Credit

An arrangement between a financial institution and a client that establishes a maximum loan balance that the borrower can access.

Commitment Fee

A fee charged by a lender to a borrower for an unused credit line or undisbursed loan, serving as compensation for keeping funds available.