When the price level is rising at ______ and the real interest ...

[Shelles]

When the price level is rising at ______ and the real interest rate is 1 per-cent a year, the nominal interest rate is 3 percent a year.
 
  A. 4 percent a year
  B. 3 percent a year
  C. 2 percent a year
  D. 1 percent a year

Question 2

Tom Searchinger, a senior attorney at the Environmental Defense Fund, observed that generous farm subsidies have encouraged farmers to produce more corn and more wheat. How does this affect the market for fertilizer?
 
  A) The supply of fertilizer increases. B) The demand for fertilizer increases.
  C) The supply of fertilizer decreases. D) The demand for fertilizer decreases.

[ricroger]

Answer to Question 1

C The nominal interest rate equals the real interest rate plus the inflation rate, so if the nominal interest rate is 3 percent a year and the real interest rate is 1 percent a year, the inflation rate must be 2 percent a year.

Answer to Question 2

B