If People Expect an Inflation Rate of 3% and Later

question 101

Multiple Choice

If people expect an inflation rate of 3% and later it turns out to be 5%,then the real rate of return will be:

• A) less than the equilibrium rate.
• B) greater than the equilibrium rate.
• C) 3%.
• D) 5%.

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Definitions:

Undergraduates

Students pursuing their first degree, typically a bachelor's, at a college or university.

Widespread Optimism

A general feeling or belief, shared by a large number of people, that the future will be positive or beneficial, often occurring in periods of economic growth or societal progress.

Postwar Prosperity

A period of economic growth and widespread affluence following the end of a significant conflict, notably observed after World War II in several Western countries.

Unemployment

The state of being without a paid job despite actively looking for one, often used as an economic indicator.