If the Rate of Inflation Is 2 Percent, the Output

question 32

Multiple Choice

If the rate of inflation is 2 percent, the output gap is 0 percent, the nominal interest rate is 3 percent, and the unemployment rate is 10 percent, what is the real interest rate?

• A) 1 percent
• B) 2 percent
• C) -7 percent
• D) -1 percent
• E) 3 percent

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Definitions:

Secured Party

A creditor or lender that has an interest, typically in the form of a lien, in the collateral offered by the debtor to secure a loan or obligation.

Collateral

Assets pledged by a borrower to secure a loan or credit, which can be seized by the lender if the borrower defaults.

Proceeds

The total amount of money or assets that result from a particular transaction or event.

Consideration

Something of value that is given by both parties to a contract that induces them to enter into the agreement to exchange mutual performances.