Which of the Following Is Correct

question 277

Multiple Choice

Which of the following is correct?

• A) real interest rate = nominal interest rate - anticipated inflation rate
• B) real interest rate = nominal interest rate + anticipated inflation rate
• C) real interest rate = nominal interest rate * anticipated inflation rate
• D) real interest rate = nominal interest rate / anticipated inflation rate

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Definitions:

Real Output

The actual value of goods and services produced in an economy, adjusted for inflation, representing the total economic output.

Money Supply

The aggregate financial resources available for transactions in an economy at a specific point, counting in cash forms like coins, notes, and the values in checking and savings bank accounts.

Nominal GDP

The market value of all finished goods and services produced within a country's borders in a specific time period, measured in current prices without adjusting for inflation.

M1 Velocity of Money

The rate at which money circulates in the economy, measured as the ratio of nominal GDP to the money supply (M1), indicating how often a unit of currency is used to purchase domestically-produced goods and services within a given time period.