Suppose you are a lender and you expect inflation to be 4 percent over the next year because inflation was 4 percent in the last year. If you want to earn a real return of 2 percent on any loans you make, you will set the interest rate on your loans equal to:
A. 2 percent.
B. 6 percent.
C. 10 percent.
D. 4 percent.
Answer: B
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Borrowers and lenders make transactions based on the
A) expected real interest rate less the expected rate of inflation. B) real interest rate. C) expected real interest rate. D) expected nominal interest rate.
A decrease in the value of a currency in terms of other currencies is known as
A) an appreciation. B) a depreciation. C) a par value. D) a gold point.
A change in a nonprice factor of demand will cause:
A. a movement along the demand curve. B. a shift of the demand curve. C. the demand curve to rotate inward. D. the demand curve to rotate outward.
The term opportunity cost refers to the
A. value of what is gained when a choice is made. B. difference between the value of what is gained and the value of what is forgone when a choice is made. C. value of what is forgone when a choice is made. D. direct costs involved in making a choice.