Figure 26-4.On the horizontal axis of the graph,L represents the quantity of loanable funds in billions of dollars.
-Refer to Figure 26-4.If the equilibrium quantity of loanable funds is $50 billion and if the equilibrium nominal interest rate is 8 percent,then
A)there is an excess supply of loanable funds at a real interest rate of 6 percent.
B)there is an excess demand for loanable funds at a real interest rate of 8 percent.
C)the rate of inflation is approximately 2 percent.
D)the rate of inflation is approximately 14 percent.

Question

Figure 26-4.On the horizontal axis of the graph,L represents the quantity of loanable funds in billions of dollars. 
-Refer to Figure 26-4.If the equilibrium quantity of loanable funds is $50 billion and if the equilibrium nominal interest rate is 8 percent,then
A)there is an excess supply of loanable funds at a real interest rate of 6 percent. 
B)there is an excess demand for loanable funds at a real interest rate of 8 percent. 
C)the rate of inflation is approximately 2 percent. 
D)the rate of inflation is approximately 14 percent.

Quizplus · Accepted Answer

The nominal interest rate is 8 percent, and if the real interest rate is 6 percent, the rate of inflation is the difference, which is approximately 2 percent.