Distinguish between real rate of interest and nominal rate of interest
The real rate of interest is the percentage increase in purchasing power that the borrower pays to the lender for the privilege of borrowing. It indicates the increased ability to purchase goods and services that the lender earns.
The nominal rate of interest is the percentage by which the money the borrower pays back exceeds the money that was borrowed, making no adjustment for any decline in the purchasing power of this money that results from inflation.
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Autarky refers to
A) a situation in which there is no trade. B) the equilibrium a nation reaches after trade begins. C) a situation in which nations trade goods and services. D) the location on a consumption possibilities curve.
Which of the following best describes the "interest rate effect"?
A) An increase in the price level lowers the interest rate and chokes off investment and consumption spending. B) An increase in the price level lowers the interest rate and chokes off government spending. C) An increase in the price level raises the interest rate and chokes off government spending. D) An increase in the price level raises the interest rate and chokes off investment and consumption spending.
If a vineyard wants to raise funds to purchase a new bottling machine, it does so in the
A) factor market. B) output market. C) product market. D) alcoholic beverages market.
Starting from long-run equilibrium, a large tax increase will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. recessionary; lower; potential B. expansionary; lower; potential C. expansionary; higher; potential D. recessionary; lower; lower