Alex wants to borrow $1,000 from Kara. If he repays the loan in one year, Kara would require him to pay 5 percent interest on the loan. If Alex wants to repay the loan over three years, but Kara strongly prefers present to future consumption, we would
expect the interest rate on a three-year loan to be:
A. lower than for a one-year loan.
B. greater than for a one-year loan.
C. the same as for a one-year loan.
D. higher if Kara expected there to be no inflation over the loan repayment period.
B. greater than for a one-year loan.
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The law of one price (LOOP) indicates that:
a. The nominal wage rate in one country should be equal to the exchange-rate-adjusted wage of the average laborer in another country. b. The price of a good in one country should be equal to the exchange-rate-adjusted price of the same product in another country. c. The quantity produced of a good in one country should be equal to the exchange-rate-adjusted quantity produced of the same product in another country. d. None of the above. e. Nominal interest rates in countries should be identical because if they were not, arbitragers could make risk-free profits.
According to the political business cycle theory, if the Fed wanted to see a President re-elected, prior to the election it might
a. lower the discount rate and sell bonds. b. lower the discount rate and buy bonds. c. raise the discount rate and sell bonds. d. raise the discount rate and buy bonds.
The uncertainty that results from inflation causes changes in
A. Saving and investment behavior, but not consumption. B. Consumption, but not saving and investment behavior. C. Consumption, saving, and investment behavior. D. Income, but not consumption.
If the tax multiplier is -4, the MPS is
A. 0.2. B. 0.3. C. 0.4. D. 0.5.