Suppose that General Motors is deciding whether to build a new large automobile plant.It intends to borrow money to finance the new plant.Which of the following is NOT known to General Motors when it decides whether to build the new plant?
A) The expected real interest rate
B) The realized real interest rate
C) The expected nominal interest rate
D) The expected inflation rate

Question

Quizplus · Accepted Answer

The realized real interest rate is the actual interest rate that GM will pay on its borrowed funds. GM cannot know this rate in advance since it will depend on market conditions at the time it actually borrows the funds. The other options (expected real interest rate, expected nominal interest rate, expected inflation rate) can be estimated or forecasted with some degree of accuracy before GM makes a decision about building the new plant.

Suppose That General Motors Is Deciding Whether to Build a New