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AP® Macroeconomics

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Moderate

Nominal interest & Expected Inflation

APMACR-EKTXDJ

If expected inflation is 4% and a bank wants a real return of 6% then

A

the bank will charge a 2% interest rate on borrowing.

B

the bank will charge a 6% interest rate on borrowing.

C

the Bank will charge an 8% interest rate on borrowing.

D

the bank will charge a 10% interest rate on borrowing.

E

the interest rate is not able to be determined without more data.