1 a person borrows 10000 today at a nominal interest rate, Ask an Expert

Economics

1. A person borrows $10,000 today at a nominal interest rate of 5%; inflation for the past 10 years has always been 2%. Today, inflation instantly rises to 7% and stays that way for the duration of the loan. Based on the above information, ceteris paribus (all else equal), today:

a. you will pay the lender back exactly $10,700.

b. the real rate of interest on your loan is 14%.

c. the real rate of interest on your loan was previously 10% and is now 35%.

d. the real rate of interest on your loan is now –2%.

e. you will pay the lender back exactly $9,500.

2. The Harrod-Domar model is based on the following assumption(s):

a. the marginal product of capital is constant.

b.the marginal product of capital is not constant.

c. saving is greater than productive investment.

d. saving is less than productive investment.

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M92000161

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