the economics of money, banking, and financial markets

106 #

© 2014 Pearson Canada Inc.#

4.3 The Distinction Between Real and Nominal Interest Rates

1. 
   

   The ____ interest rate is adjusted for expected changes in the price level.
   A) ex ante real
   B) ex post real
   C) ex post nominal
   D) ex ante nominal
   Answer: A
   Diff: 1 Type: MC Page Ref: 78
   Skill: Recall
   Objective List: 4.3 Examine the distinction between real and nominal interest rates

   
   


2. 
   

   The ____ interest rate more accurately reflects the true cost of borrowing.
   A) nominal
   B) real
   C) discount
   D) market
   Answer: B
   Diff: 1 Type: MC Page Ref: 78
   Skill: Recall
   Objective List: 4.3 Examine the distinction between real and nominal interest rates

   
   


3. 
   

   The nominal interest rate minus the expected rate of inflation ____.
   A) defines the real interest rate
   B) is a less accurate measure of the incentives to borrow and lend than is the nominal interest
   rate
   C) is a less accurate indicator of the tightness of credit market conditions than is the nominal
   interest rate
   D) defines the discount rate
   Answer: A
   Diff: 1 Type: MC Page Ref: 78
   Skill: Recall
   Objective List: 4.3 Examine the distinction between real and nominal interest rates

   
   


4. 
   

   In a country where prices never change, the nominal interest rate is equal to the ____.
   A) real exchange rate
   B) inflation rate
   C) expected inflation rate
   D) real interest rate
   Answer: D
   Diff: 1 Type: MC Page Ref: 78
   Skill: Applied
   Objective List: 4.3 Examine the distinction between real and nominal interest rates