If the Real Rate of Interest Is 12% and the Nominal

question 7

Multiple Choice

If the real rate of interest is 12% and the nominal rate of interest is 31%, then the rate of inflation must be about

• A)27.26%.
• B)43%.
• C)2.58%.
• D)16.96%.
• E)22%.

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Definitions:

Fundamental Attribution Error

The tendency to overemphasize personality-based explanations for behaviors observed in others while underestimating the influence of situational factors.

Self-serving Bias

A common tendency to attribute one's successes to personal characteristics and failures to external factors.

Just-world Hypothesis

The cognitive bias that assumes that actions always yield morally fair and fitting consequences, essentially that the world is just.

Groupthink

A psychological phenomenon that occurs within a group of people when the desire for harmony or conformity in the group results in an irrational or dysfunctional decision-making outcome.