Question

Which of the following accurately explains the reason banks cannot advertise the real interest rate they offer for loans?

a) Such advertising would not be competitive with other lenders.

b) Federal regulations do not allow the real interest rate to be disclosed.

c) The actual inflation rate cannot be known in advance.

d) Advertising would decrease their profits.

e) Banks never expect there to be an increase in the aggregate price level.

Answer 1

C) The actual inflation rate cannot be known in advance.

Answer 2

c) The actual inflation rate cannot be known in advance.

The real interest rate is the nominal interest rate minus the inflation rate. Since inflation rates are unpredictable and can change over time, banks cannot accurately advertise the real interest rate they offer for loans. Therefore, they usually advertise the nominal interest rate instead.

Step-by-step explanation: