The interest rate that pertains to the spending allocation model is the
A)nominal interest rate.
B)real interest rate.
C)federal funds rate.
D)prime interest rate.
E)interest rate on government debt.

Question

Quizplus · Accepted Answer

The spending allocation model takes into account the inflation rate when making spending decisions, so the relevant interest rate would be the real interest rate, which is adjusted for inflation. The nominal interest rate (A) does not take inflation into account, while the federal funds rate (C), prime interest rate (D), and interest rate on government debt (E) are not directly relevant to individual spending decisions.

The Interest Rate That Pertains to the Spending Allocation Model