If the Annual Real Rate of Interest Is 2

question 2

Multiple Choice

If the annual real rate of interest is 2.5%, and the expected inflation rate is 3.7%, the nominal rate of interest would be approximately

• A) 3.7%.
• B) 6.2%.
• C) 2.5%.
• D) -1.2%.

---

Definitions:

Linear Supply and Demand Curves

Graphical models where the supply and demand for a good are represented by straight lines, indicating a constant relationship between quantity supplied/demanded and price.

Parameters

Specific characteristics or constants that define or limit the operation of a system, model, or function.

Market for Coffee

The global or local marketplace where coffee, as a commodity, is traded, including its production, distribution, and consumption.

Long Run

Refers to a period in which all factors of production and costs are variable, allowing firms to adjust all inputs.