Multiple Choice Identify the
choice that best completes the statement or answers the question.
|
|
1.
|
If two parties to a loan contract agree that the lender should earn an 8 percent
increase in purchasing power as a result of a loan, and the inflation rate is 5 percent, what is the
nominal interest rate?
a. | 1 percent | b. | 3 percent | c. | 8
percent | d. | 13 percent | e. | 5 percent |
|
|
2.
|
Historically, nominal GDP has risen faster than real GDP because
a. | historically inflation is more common and more frequent than
deflation. | b. | imports have risen faster than exports. | c. | populations keep
increasing | d. | technological progress results in more efficient
production. |
|
|
3.
|
Among the winners if inflation is higher than expected are:
a. | nominal assets owners. | b. | those with fixed incomes. | c. | borrowers. | d. | lenders. |
|
|
4.
|
With regard to the aggregate price level, economists generally believe:
a. | inflation is worse than deflation. | b. | price stability is a desirable
goal. | c. | deflation is worse than inflation. | d. | none of the
above. |
|
|
5.
|
Unexpected inflation:
a. | affects everyone the same. | b. | helps some people but hurts
others. | c. | affects only consumers. | d. | affects only business
firms. |
|
|
6.
|
If the economy grew at a 3% rate this year and average prices grew ______,
people would be better off on this year compared to last year.
a. | faster than 10% | b. | faster than 3% | c. | slower than
3% | d. | 3% |
|
|
7.
|
If inflation is higher than expected, which of the following is likely to be
better off as a result?
a. | debtors | b. | creditors | c. | workers on fixed
pensions | d. | Social Security beneficiaries |
|
|
8.
|
Expecting the inflation rate to be 3%, Tony decides to put his savings in a
12-month certificate of deposit yielding a fixed 6% interest rate. If the actual inflation rate is
________, it can be argued that ________ is (are) worse off.
a. | below 3%; the bank issuing the certificate | b. | below 3%;
Tony | c. | above 3%; the bank issuing the certificate | d. | exactly 6%; both the
bank and Tony |
|
|
9.
|
In a market basket of goods:
a. | both the prices and the quantities change. | b. | the quantities
change and the prices are held constant. | c. | the quantities stay constant and the prices
change. | d. | both the prices and the quantities are held constant. |
|
|
10.
|
Two parties to a loan contract agree to a loan with a stated (nominal) interest
rate of 8% with both of them assuming the inflation rate will be 3% over the life of the loan.
The actual inflation rate during the loan's pay-back period turns out to be 5%. Who benefitted
from the actual inflation rate being 5%?
a. | the borrower | b. | the lender | c. | they both benefit
compared to what they expected | d. | neither |
|
|
11.
|
The GDP deflator is another name for the consumer price index (CPI).
|
|
12.
|
The CPI this year is 148. Given this information, what do we know about the
inflation rate?
a. | We don't know much about the annual inflation rate, but we know that prices are
48 percent higher than the base year. | b. | It has increased since the previous year by 48
percent. | c. | It has increased at an increasing rate. | d. | It has increased
since the previous year, but we cannot tell by how much. | e. | It has increased at
a decreasing rate. |
|
|
13.
|
Inflation can best be defined as
a. | any change in the purchasing power of money | b. | an increase in the
price of intermediate goods and services in the economy | c. | an increase in the
price of every good and service in the economy at the same time | d. | a one-time increase
in the price level | e. | a general increase in most prices as measured
by the price level |
|
|
14.
|
If the price index in year 1 is 110 and the price index in year 2 is 115, then
the inflation rate is exactly 5% from year 1 to year 2.
|
|
15.
|
A price index:
a. | always includes a base year. | b. | measures the cost of purchasing a market basket
of output across different years. | c. | is normalized to 100 for the base
year. | d. | is all of the above. |
|
|
16.
|
Prices keep rising every year, but the rate at which they increase has slowed
down significantly. This is described as
a. | accelerating inflation | b. | deflation | c. | disinflation | d. | inflation |
|
|
17.
|
Suppose you received a 3 percent increase in your nominal wage. Over the year,
inflation ran about 6 percent. Which of the following is true?
a. | Your real wage fell. | b. | Your nominal wage fell. | c. | Both nominal and
real wages increased. | d. | Both your nominal and real wages
decreased. | e. | Although your nominal wage fell, your real wage
increased. |
|
|
18.
|
Deflation:
a. | can result in an increase in employment. | b. | encourages people to
hold cash rather than invest in new factories and productive assets. | c. | raises the cost of
making purchases and sales for which cash is required. | d. | is all of the
above. |
|