7. In 2000 the nominal rate of interest was 7 percent. The rate of inflation was 2.7 percent. The real rateinterest was:b. 7 percent.c. 4.3 percentd. 2.7 percenta. 9.7 percent.

Answered: 7. In 2000 the nominal rate of interest…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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7. In 2000 the nominal rate of interest was 7 percent. The rate of inflation was 2.7 percent. The real rate
interest was:
b. 7 percent.
c. 4.3 percent
d. 2.7 percent
a. 9.7 percent.

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Introduction

The definition of inflation is an increase in prices across the board for goods and services. Because inflation is a persistent phenomenon, a single increase in the cost of goods and services will not be considered inflation. Only when prices for goods and services rise continuously for a predetermined amount of time is there inflation. The economy benefits from mild inflation because it pushes producers to produce more goods so they may make a higher profit; conversely, extreme inflation causes disruptions in the economy.

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