Assume you put money into an asset that pays you 7% interest and inflation is 5%.Which statement is correct?
A) This means the nominal rate of interest is 7% and the real rate is 5%.
B) This means the real rate of interest is 2%.
C) The textbook states that all interest rates would be assumed to be the real rate; thus, the nominal rate is 12%.
D) This means the nominal rate of interest is 35%.
E) If the rate of inflation falls, your real rate of interest from this asset would also fall.
Correct Answer:
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A)
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