Lola Wants to Make an 6% Real Return on a Loan

question 170

Multiple Choice

Lola wants to make an 6% real return on a loan that she is planning to make, and the expected inflation rate during the period of the loan is 5%. She should charge an interest rate of

• A) 1%.
• B) 6%.
• C) 11%.
• D) 16%.

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Definitions:

Labor Force

The total number of people available to work, including both the employed and those seeking employment but currently unemployed.

Net Investment

The total amount spent on new capital assets minus the depreciation on existing capital assets.

Autonomous Consumption

The part of consumption that does not change with income levels, representing basic necessities one must purchase regardless of income.

Long-Run Aggregate Supply Curve

A graphical representation showing an economy's potential output when all prices, including wages, can fully adjust to changes in the economic environment.