Author Question: Suppose you lend me $100 for a year, and I agree to pay you $110 at the end of one year (principal ... (Read 16 times)

najmarocks25 · **on:** Oct 12, 2022

Question 1

Suppose the nominal interest rate is 10%. The rate of inflation has been 4% and is expected to continue at 4% in the future. The real interest rate, which determines the firm's decision to purchase capital, is therefore
◦ 4%.
◦ 6%.
◦ 14%.
◦ 10%.
◦ indeterminate.

Question 2

Suppose you lend me $100 for a year, and I agree to pay you $110 at the end of one year (principal plus interest). Over the intervening year, however, the average price of goods in the economy rises by 3%. The real rate of return that you will earn on your loan to me is therefore equal to
◦ 7%.
◦ 3%.
◦ 13%.
◦ 10%.
◦ greater than 13%.

breounasmoot · **Reply #1 on:** Oct 12, 2022

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