If the Nominal Interest Rate Is 4 Percent and Expected

question 109

Multiple Choice

If the nominal interest rate is 4 percent and expected inflation is 2.5 percent,then what is the expected real interest rate?

• A)1.6 percent
• B)10 percent
• C)6.5 percent
• D)1.5 percent

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Definitions:

Merit Pay

A compensation strategy that offers pay increases or bonuses to employees based on their performance accomplishments or achievements, rather than their position or seniority.

Base Pay

The initial rate of compensation an employee receives, not including benefits, bonuses, or any other potential earnings.

Merit Pay Plan

A pay system where employees receive increases in pay based on their performance, as determined through evaluations and assessments.

Performance Appraisal

A systematic evaluation process in which an employee’s job performance is assessed in relation to predefined objectives and criteria set by the employer.