Let $r$ Denote the Real Interest Rate and I Denote the Nominal

question 46

Multiple Choice

Let $r$ denote the real interest rate and i denote the nominal interest rate; these two interest rates are related by:

• A) \(i = \pi\)
• B) \(i = r - \pi\)
• C) \(i = r + \pi\)
• D) \(i = r / \pi\)
• E) None of these answers are correct.

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Definitions:

Shortage/Surplus

A shortage occurs when demand exceeds supply, whereas a surplus happens when supply exceeds demand.

Quantity Demanded

The amount of a good or service that consumers are willing and able to purchase at a specific price level.

Quantity Supplied

The quantity of a product or service that sellers are prepared and capable of offering for sale at a specific price.

Equilibrium Price

The price at which the quantity of goods supplied equals the quantity of goods demanded in a market, leading to market stability.