Which of the following statements is CORRECT? O a. The real interest rate is equal to the nominal interest rate plus inflation rate O b. If the nominal interest rate is 5%, while inflation rate is 3%, then real interest rate is 2% O c. If the inflation rate is unexpectedly high, lenders of money benefit O d. The real interest rate cannot be negative

Which of the following statements is CORRECT? O a. The real interest rate is equal to the nominal interest rate plus inflation rate O b. If the nominal interest rate is 5%, while inflation rate is 3%, then real interest rate is 2% O c. If the inflation rate is unexpectedly high, lenders of money benefit O d. The real interest rate cannot be negative

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter18: Introduction To Macroeconomics: Unemployment, Inflation, And Economic Fluctuations

Section: Chapter Questions

Problem 13P

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What is the difference between the price level and the tale of inflation?
The index number representing the price level changes from 110 to 115 in one year and then from 115 to 120 the next year. Since the index number increases by five each year, is five inflation rate each year? Is the inflation rate the same each year? Explain your answer.
The prime interest rate is the rate that banks charge their best customers. Based on the nominal interest rates and inflation rates in Table 19.10, in which of the years would it have been best to be a lender? Based on the nominal interest rates and inflation rates in Table 19.10, in which of the years given would it have been best to be a borrower?
The total price of purchasing a basket of goods in the United Kingdom over four years is: year 1=940, year 2=970, year 3=1000, and year 4=1070. Calculate two price indices, one using year 1 as the base year (set equal to 100) and the other using year 4 as the base year (set equal to 100). Then, calculate the inflation rate based on the first price index. If you had used the other price index, would you get a different inflation rate? If you are unsure, do the calculation and find out.