If the Inflation Rate Is 2 Percent and the Real

question 353

Multiple Choice

If the inflation rate is 2 percent and the real interest rate is 3 percent, then the nominal interest rate is

• A)5 percent.
• B)1 percent.
• C)1.5 percent
• D)0.67 percent.

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Definitions:

Price Level

A measure of the average prices of goods and services in an economy, indicating the purchasing power of money and the cost of living.

Aggregate Demand-Aggregate Supply Diagram

A graphical representation used in macroeconomics to illustrate the relationship between total demand and total supply in an economy.

Full Employment

An economic situation in which all available labor resources are being used in the most efficient way possible, essentially meaning that unemployment is at the lowest possible level without causing inflation.

Aggregate Supply Curve

A graphical representation that shows the total amount of goods and services that producers in an economy are willing and able to supply at different price levels over a period.