If Expected Inflation Is Constant and the Nominal Interest Rate

question 18

Multiple Choice

If expected inflation is constant and the nominal interest rate decreases by 2 percentage points,then the real interest rate

• A)increases by 2 percentage points.
• B)increases,but by less than 2 percentage points.
• C)decreases,but by less than 2 percentage points.
• D)decreases by 2 percentage points.

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Definitions:

Marginal Cost

Marginal cost is the additional cost incurred by producing one more unit of a good or service.

Average Total Cost

The cost of producing all items, when divided by the total amount of items produced, shows the cost for each unit produced.

Average Variable Cost

The cost of variable inputs (e.g., raw materials and labor) divided by the total output, showing how variable costs change with output levels.

Market Price

The existing rate at which a service or asset is available for purchase or sale in the market.