If the Rate of Inflation Is -2 Percent, the Output

question 54

Multiple Choice

If the rate of inflation is -2 percent, the output gap is -5 percent, the nominal interest rate is 5 percent, and the unemployment rate is 8 percent, what is the real interest rate?

• A) 10 percent
• B) 0 percent
• C) -3 percent
• D) 7 percent
• E) 3 percent

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Definitions:

Expected to Expire

Refers to assets or rights that have a limited time frame before they cease to be valid.

Warrant

A financial instrument that gives the holder the right to purchase a company's stock at a specific price before a certain date.

Call Option

A financial contract that gives the holder the right, but not the obligation, to buy a specified amount of an underlying asset at a predetermined price within a specified time frame.

Convertible Bond

A type of bond that can be converted into a predetermined number of the issuer's equity shares.