What is the real interest rate? What is the nominal interest rate? Characterize the equation to express the real interest rate in terms of the nominal interest rate.

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Sonal BahlLv10

29 Sep 2019

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Label each of the following statements true, false, or uncertain. Explain briefly.

1. The nominal interest rate is measured in terms of goods; the real interest rate is measured in terms of money.

2. As long as expected inflation remains roughly constant, the movements in the real interest rate are roughly equal to the movements in the nominal interest rate.

3. When expected inflation increases, the real rate of interest falls.

4. The nominal policy interest rate is set by the central bank.

goldclam880

comparing the situation of a nominal rate of 10 percent and an inflation rate of 9 percent with a nominal interest rate of 6 percent and inflation rate of 2 percent, consumers would borrow more in which situation?

a) nominal interest rate of 10 percent since real interest rate is 1 percent

b) nominal interest rate of 6 percent since the real interest rate is 2 percent

c) nominal interest rate of 6 percent since the real interest rate is 4 percent

d) nominal interest rate of 10 percent since the real interest rate is 9 percent

plumsheep807

Which of the following statements is TRUE?

	If the nominal interest rate is 5% and the inflation rate is 2.5%, the real interest rate is 2.5%.
	If the nominal interest rate is 5% and the inflation rate is 4%, the real interest rate is 9%.
	If the real interest rate is 3% and the inflation interest rate is 5%, the nominal interest rate is 2%.
	If the real interest rate is 3% and the nominal interest rate is 5%, the inflation rate is 8%.

taupeeel656

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What is the real interest rate? What is the nominal interest rate? Characterize the equation to express the real interest rate in terms of the nominal interest rate.

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