Asked by
Essynce Templeton
on Oct 14, 2024
Verified
The nominal interest rate is 5% and the inflation rate is 6%.A rational consumer
A) will not save since the real interest rate is negative.
B) will save less than 1% of her income.
C) will save the same amount regardless of the inflation rate; only the nominal interest rate matters.
D) might save despite the negative real interest rate.
E) will necessarily save less if the inflation rate rises and the nominal interest rate does not change.
Nominal Interest Rate
The stated interest rate on a loan or investment, not adjusted for inflation.
Rational Consumer
An assumption in economics that consumers aim to maximize their utility or satisfaction from consumption choices, given their budget constraints.
- Acknowledge the link between actual and nominal interest rates in relation to inflation.
- Evaluate the repercussions of interest rates on the decision-making process for savings and investments.
Verified Answer
AT
Learning Objectives
- Acknowledge the link between actual and nominal interest rates in relation to inflation.
- Evaluate the repercussions of interest rates on the decision-making process for savings and investments.