QuestionJune 13, 2025

Question 20/Multiple Choice Worth 5 points) (02.04 LC) What is the relationship between a lower nominal rate and a higher real interest? Decreased purchasing power Increased purchasing power Increased production Decreased production

Question 20/Multiple Choice Worth 5 points) (02.04 LC) What is the relationship between a lower nominal rate and a higher real interest? Decreased purchasing power Increased purchasing power Increased production Decreased production
Question 20/Multiple Choice Worth 5 points)
(02.04 LC)
What is the relationship between a lower nominal rate and a higher real interest?
Decreased purchasing power
Increased purchasing power
Increased production
Decreased production

Solution
4.2(217 votes)

Answer

Decreased purchasing power Explanation 1. Define Nominal and Real Interest Rates Nominal interest rate is the stated rate without inflation adjustment. Real interest rate accounts for inflation: **Real Interest Rate = Nominal Interest Rate - Inflation Rate**. 2. Analyze Relationship A lower nominal rate with higher real interest implies high inflation, reducing purchasing power.

Explanation

1. Define Nominal and Real Interest Rates<br /> Nominal interest rate is the stated rate without inflation adjustment. Real interest rate accounts for inflation: **Real Interest Rate = Nominal Interest Rate - Inflation Rate**.<br /><br />2. Analyze Relationship<br /> A lower nominal rate with higher real interest implies high inflation, reducing purchasing power.
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