If the Inflation Rate Is 3 Percent and the Real

question 10

Multiple Choice

If the inflation rate is 3 percent and the real interest rate is 4 percent,what is the nominal interest rate?

• A) 1 percent
• B) 3 percent
• C) 5 percent
• D) 7 percent

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Definitions:

Imputed Interest

The interest rate that is considered or assumed in the calculation of the cost of a decision, not explicitly paid.

Residual Income

The amount of income that an individual has after all personal debts and expenses have been paid from his or her earnings.

Return On Investment

A financial metric used to evaluate the efficiency of an investment, calculated as net profit divided by the initial cost of investment.

Return On Investment

A financial metric used to evaluate the efficiency or profitability of an investment, calculated as net profit divided by the cost of investment.