Suppose Jeremy borrows $100 from Mike, at an interest rate of 7%. If the inflation rate over the year turns out to be 5%, which of the following is true?
A) The nominal rate of interest is 2%
B) The real rate of interest is 7%
C) The real rate of interest is 12%
D) The nominal rate of interest is 12%
E) The real rate of interest is 2%.
Correct Answer:
Verified
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