If the Nominal Interest Rate Is 5 Percent and the Inflation

question 363

Multiple Choice

If the nominal interest rate is 5 percent and the inflation rate is 2 percent, then what is the real interest rate?

• A)10 percent
• B)7 percent
• C)3 percent
• D)2.5 percent

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Definitions:

Deadweight Loss

A loss of economic efficiency that can occur when the equilibrium for a good or a service is not achieved or is unachievable.

Excess Burden

Excess Burden, also known as deadweight loss, is the cost to society created by market inefficiency, which occurs when supply and demand are out of equilibrium.

Nonneutral Tax

A tax that impacts differently on different types of economic activities, influencing the allocation of resources.

Perfectly Elastic

Describes a market situation where product demand or supply can vary greatly with a small change in price.