In an Inflationary Atmosphere That Everyone Anticipates Will Persist, Lenders

question 3

Multiple Choice

In an inflationary atmosphere that everyone anticipates will persist, lenders will

• A) desire a lower nominal interest rate to increase the real rate.
• B) desire a higher nominal interest rate to protect against the inflation.
• C) tend to see the real rate of interest increase, particularly if the inflation is unforeseen.
• D) have the real rate of interest guaranteed by the Federal Reserve Board.

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Definitions:

Legal Due Date

The specific date by which a legal obligation must be satisfied, such as the payment of debts or completion of contractual duties.

Principal

The original sum of money borrowed in a loan or the amount of the investment.

Rate

The percentage at which interest is charged on a loan or earned on an investment.

Term Deposit

A banking product where money is locked away for a certain period of time at a fixed interest rate.