The Inflation Rate Has Been 4 Percent for Twenty Years

question 389

Multiple Choice

The inflation rate has been 4 percent for twenty years, and the nominal interest rate has been 8 percent during this same time period. Suddenly, the public anticipates that the inflation rate will be 8 percent this coming year. The real rate of interest for the coming year is

• A) 0 percent.
• B) 2 percent.
• C) 4 percent.
• D) 6 percent.

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Definitions:

Equipment Breakdown

The failure or malfunction of machinery or equipment, interrupting regular operations.

On-costs

Additional costs beyond basic salaries that include items like payroll taxes, superannuation, and workers' compensation.

Direct Labour

The wages paid to workers directly involved in producing goods or providing services.

Indirect Labour

Labor costs associated with tasks that do not directly contribute to the production of goods or services but are necessary for the operation.