If the interest rate on loans before adjusting for inflation is 9%, and the expected inflation rate is 4%, then which of the following must be true?
A.
Lenders are expected to receive an additional 4% on their loaned funds.
B.
Borrowers are expected to pay an additional 4% on their borrowed funds.
C.
The expected real interest rate is 9%.
D.
The nominal interest rate is 9%.
2.
Sam pays monthly installments on a five-year fixed interest rate auto loan. If the inflation rate increases, which of the following will happen?
A.
Sam will pay a lower nominal interest rate.
B.
Sam will pay a higher nominal interest rate.
C.
Sam will pay a lower real interest rate.
D.
Sam will pay a higher real interest rate.
3.
Which of the following best describes the nominal interest rate on a mortgage loan that a bank offers to a customer?
A.
It is the real interest rate divided by the price level.
B.
It is the real interest rate minus the expected inflation rate.
C.
It is the interest rate charged by the bank.
D.
It is the interest rate charged by the bank minus the expected inflation rate.
4.
Which of the following is adjusted by the actual inflation rate?
A.
Nominal wages
B.
Unemployment rate
C.
Price of previously issued bonds
D.
Real interest rates
5.
Spencer took a 9 percent one-year fixed-rate loan to buy a new car. He expected to pay a real interest rate of 5 percent. If at the end of the year Spencer only paid a 3 percent real interest rate, which of the following is true?
