When Prices Increase, the Real Interest Rate

question 47

Multiple Choice

When prices increase, the real interest rate

• A) will increase and total planned spending on goods and services will increase.
• B) will increase and total planned spending on goods and services will decrease.
• C) will decrease and total planned spending on goods and services will decrease.
• D) will not be affected.

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Definitions:

Probable Loss

An expected financial loss from contingent liabilities that can be reasonably estimated.

Estimable Loss

A potential financial loss that can be predicted or estimated in terms of its amount or impact.

Effective Interest Rate

This is the actual return on an investment, taking into account the effect of compounding interest as opposed to the nominal rate.

Bond Issue Costs

Expenses associated with the issuance of bonds, including legal, accounting, underwriting fees, and other costs that are often amortized over the life of the bond.