Figure 13-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars.
-Refer to Figure 13-4. If the equilibrium quantity of loanable funds is $50 billion and if the equilibrium nominal interest rate is 8 percent, then
A)there is an excess supply of loanable funds at a real interest rate of 6 percent.
B)there is an excess demand for loanable funds at a real interest rate of 8 percent.
C)the rate of inflation is approximately 2 percent.
D)the rate of inflation is approximately 14 percent.

Question

Figure 13-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. 
-Refer to Figure 13-4. If the equilibrium quantity of loanable funds is $50 billion and if the equilibrium nominal interest rate is 8 percent, then
A)there is an excess supply of loanable funds at a real interest rate of 6 percent. 
B)there is an excess demand for loanable funds at a real interest rate of 8 percent. 
C)the rate of inflation is approximately 2 percent. 
D)the rate of inflation is approximately 14 percent.

Quizplus · Accepted Answer

The nominal interest rate is the sum of the real interest rate and the inflation rate. If the nominal rate is 8% and the real rate is 6%, the inflation rate is approximately 2%.