When the Inflation Rate Is 3 Percent and the Nominal

question 239

Multiple Choice

When the inflation rate is 3 percent and the nominal interest rate is 5 percent, the real interest rate is

• A) 2 percent.
• B) 8 percent.
• C) 0.6 percent.
• D) 1.6 percent.
• E) 7 percent.

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Definitions:

Credit Terms

The conditions, including repayment period and interest rates, under which credit is extended by a lender to a borrower.

Credit Extended

Credit extended refers to the amount of credit or loan a lender provides to a borrower, allowing them to purchase goods or services on credit.

Discount

A reduction in the price or value of a product, security, or bond below its nominal or face value, often to encourage sale or investment.

Break-Even Default Rate

The default rate at which the expected return from a loan equals the cost of the loan, resulting in no profit or loss.