Consider the Situations of a Lender of Money and a Borrower

question 73

Multiple Choice

Consider the situations of a lender of money and a borrower of money.Which of the following situations is least burdensome for the borrower?

• A)nominal interest rate of 15% and an inflation rate of 8%
• B)nominal interest rate of 10% and an inflation rate of 1%
• C)nominal interest rate of 8% and an inflation rate of 2%
• D)nominal interest rate of 4% and an inflation rate of 4%
• E)nominal interest rate of 29% and an inflation rate of 21%

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Definitions:

Excess Capacity

A situation where a firm is operating below its maximum production capability and can produce more with the existing resources.

Physical And Human Capital

Assets including machinery, buildings (physical capital) and the skills, knowledge, and experience possessed by an individual or population (human capital).

Excess Capacity

A situation where a firm is producing at a lower scale of output than it has been built to handle, due to insufficient demand.

Product Diversity

The variety of different items within a particular category available to consumers in the market.