The Nominal Interest Rate Is 5% and the Inflation Rate

question 54

Multiple Choice

The nominal interest rate is 5% and the inflation rate is 6%.A rational consumer

• A)will not save since the real interest rate is negative.
• B)will save less than 1% of her income.
• C)will save the same amount regardless of the inflation rate; only the nominal interest rate matters.
• D)might save despite the negative real interest rate.
• E)will necessarily save less if the inflation rate rises and the nominal interest rate does not change.

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Definitions:

Nash Equilibrium

In game theory, the equilibrium that results when all players choose the action that maximizes their payoffs given the actions of other players, ignoring the effect of that action on the payoffs of other players; also known as noncooperative equilibrium.

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Advertising involves promoting products or services through various mediums to inform potential customers and influence their purchasing decisions.

Game Theory

A branch of mathematics that studies strategic interactions among rational decision-makers, used to analyze situations in which the outcome depends on the actions of multiple agents.

Payoff Matrix

A table that shows the potential outcomes or payoffs from different decisions or strategies in a strategic or game-theoretic context.