ECO CHAPTER 24 ( 61 - 95 ) END SEC02

D

71. If the nominal interest rate is 7.5 percent and the rate of inflation is -2.5 percent, then the real interest rate is a. -10 percent. b. -5 percent. c. 5 percent. d. 10 percent.

C

72. If the nominal interest rate is 8 percent and the real interest rate is 5.5 percent, then the inflation rate is a. -2.5 percent. b. 0.45 percent. c. 2.5 percent. d. 13.5 percent.

C

73. If the nominal interest rate is 8 percent and the real interest rate is 4.5 percent, then the inflation rate is a. -3.5 percent. b. 0.78 percent. c. 3.5 percent. d. 12.5 percent.

D

75. If the nominal interest rate is 4 percent and the real interest rate is -2.5 percent, then the inflation rate is a. -6.5 percent. b. -1.5 percent. c. 1.5 percent. d. 6.5 percent.

A

77. If the nominal interest rate is 5 percent and the real interest rate is 7 percent, then the inflation rate is a. -2 percent. b. 0.4 percent. c. 2 percent. d. 12 percent.

A

61. The nominal interest rate tells you a. how fast the number of dollars in your bank account rises over time. b. how fast the purchasing power of your bank account rises over time. c. the number of dollars in your bank account today. d. the purchasing power of your bank account today.

B

62. The real interest rate tells you a. how fast the number of dollars in your bank account rises over time. b. how fast the purchasing power of your bank account rises over time. c. the number of dollars in your bank account today. d. the purchasing power of your bank account today.

A

63. Which of the following statements about real and nominal interest rates is correct? a. Real interest rates can be either positive or negative, but nominal interest rates must be positive. b. Real interest rates and nominal interest rates must be positive. c. Real interest rates must be positive, but nominal interest rates can be either positive or negative. d. Real interest rates and nominal interest rates can be either positive or negative.

D

64. Which of the following statements about real and nominal interest rates is correct? a. When the nominal interest rate is rising, the real interest rate is necessarily rising; when the nominal interest rate is falling, the real interest rate is necessarily falling. b. If the nominal interest rate is 4 percent and the inflation rate is 3 percent, then the real interest rate is 7 percent. c. An increase in the real interest rate is necessarily accompanied by either an increase in the nominal interest rate, an increase in the inflation rate, or both. d. When the inflation rate is positive, the nominal interest rate is necessarily greater than the real interest rate.

A

65. As long as prices are rising over time, then a. the nominal interest rate exceeds the real interest rate. b. the real interest rate exceeds the nominal interest rate. c. the real interest rate is positive. d. the nominal interest rate is a better indicator than the real interest rate of how fast the purchasing power of your bank account is changing over time.

C

66. If the nominal interest rate is 8 percent and the rate of inflation is 3 percent, then the real interest rate is a. -5 percent. b. 1.67 percent. c. 5 percent. d. 11 percent.

C

67. If the nominal interest rate is 6 percent and the rate of inflation is 2 percent, then the real interest rate is a. -4 percent. b. 2 percent. c. 4 percent. d. 8 percent.

A

68. If the nominal interest rate is 6 percent and the rate of inflation is 9 percent, then the real interest rate is a. -3 percent. b. -0.33 percent. c. 3 percent. d. 15 percent.

A

69. If the nominal interest rate is 5 percent and the rate of inflation is 9 percent, then the real interest rate is a. -4 percent. b. -0.44 percent. c. 4 percent. d. 14 percent.

D

70. If the nominal interest rate is 1.5 percent and the rate of inflation is -0.5 percent, then the real interest rate is a. -4 percent. b. -2 percent. c. 1 percent. d. 2 percent.

D

74. If the nominal interest rate is 7 percent and the real interest rate is -2.5 percent, then the inflation rate is a. -9.5 percent. b. -4.5 percent. c. 4.5 percent. d. 9.5 percent.

A

76. If the nominal interest rate is 4 percent and the real interest rate is 7 percent, then the inflation rate is a. -3 percent. b. 0.75 percent. c. 3 percent. d. 11 percent.

A

78. The consumer price index was 225 in 2006 and 234 in 2007. The nominal interest rate during this period was 6.5 percent. What was the real interest rate during this period? a. 2.5 percent b. 4.0 percent c. 6.76 percent d. 10.5 percent

A

79. The consumer price index was 225 in 2006 and 236 in 2007. The nominal interest rate during this period was 6.5 percent. What was the real interest rate during this period? a. 1.6 percent b. 4.9 percent c. 6.82 percent d. 11.4 percent

B

80. During a certain year, the consumer price index increased from 150 to 159 and the purchasing power of a person's bank account increased by 3.5 percent. For that year, a. the nominal interest rate was 6 percent. b. the nominal interest rate was 9.5 percent. c. the inflation rate was 3.5 percent. d. the inflation rate was 9.5 percent.

A

81. The CPI was 120 in 2000 and 132 in 2001. Dorgan borrowed money in 2000 and repaid the loan in 2001. If the nominal interest rate on the loan was 12 percent, then the real interest rate was a. 2 percent. b. 10 percent. c. 12 percent. d. 22 percent.

A

82. Suppose that over the past year, the real interest rate was 3 percent and the inflation rate was -1 percent. It follows that a. the dollar value of savings increased at 2 percent, and the purchasing power of savings increased at 3 percent. b. the dollar value of savings increased at 2 percent, and the purchasing power of savings increased at 4 percent. c. the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 2 percent. d. the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 3 percent.

A

83. Suppose that over the past year, the real interest rate was 6 percent and the inflation rate was -2 percent. It follows that a. the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 6 percent. b. the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 8 percent. c. the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 4 percent. d. the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 6 percent.

D

84. Suppose that over the past year, the real interest rate was 5 percent and the inflation rate was 3 percent. It follows that a. the dollar value of savings increased at 5 percent, and the purchasing power of savings increased at 2 percent. b. the dollar value of savings increased at 5 percent, and the purchasing power of savings increased at 8 percent. c. the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 2 percent. d. the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 5 percent.

D

85. Suppose that over the past year, the real interest rate was 6 percent and the inflation rate was 4 percent. It follows that a. the dollar value of savings increased at 6 percent, and the purchasing power of savings increased at 2 percent. b. the dollar value of savings increased at 6 percent, and the purchasing power of savings increased at 10 percent. c. the dollar value of savings increased at 10 percent, and the purchasing power of savings increased at 2 percent. d. the dollar value of savings increased at 10 percent, and the purchasing power of savings increased at 6 percent.

C

86. Ralph puts money in the bank and earns a 5 percent nominal interest rate. If the inflation rate is 2 percent, then after one year, a. Ralph will have 3 percent more money, which will purchase 5 percent more goods. b. Ralph will have 3 percent more money, which will purchase 7 percent more goods. c. Ralph will have 5 percent more money, which will purchase 3 percent more goods. d. Ralph will have 5 percent more money, which will purchase 7 percent more goods.

C

87. Sophia deposits $1,000 in a savings account that pays an annual interest rate of 4 percent. Over the course of a year, the inflation rate is 1 percent. At the end of the year, Sophia has a. $30 more in her account, and her purchasing power has increased by $10. b. $30 more in her account, and her purchasing power has increased by $40. c. $40 more in her account, and her purchasing power has increased by $30. d. $50 more in her account and her purchasing power has increased by $40.

C

88. Maxine deposits $100 in a bank account that pays an annual interest rate of 20%. A year later, after Maxine has accumulated $20 in interest, she withdraws her $120. Maxine's purchasing power a. did not change if the inflation rate was 0%. b. decreased if the inflation rate was -2%. c. increased if the inflation rate was 5%. d. More than one of the above is correct.

D

89. Jake loaned Elwood $5,000 for one year at a nominal interest rate of 10 percent. After Elwood repaid the loan in full, Jake complained that he could buy 4 percent fewer goods with the money Elwood gave him than he could before he loaned Elwood the $5,000. From this, we can conclude that the rate of inflation during the year was a. -4 percent. b. 4 percent. c. 6 percent. d. 14 percent.

B

90. Ms. Take borrowed $1,000 from her bank for one year at an interest rate of 10 percent. During that year, the price level went up by 15 percent. Which of the following statements is correct? a. Ms. Take will repay the bank fewer dollars than she initially borrowed. b. Ms. Take's repayment will give the bank less purchasing power than it originally loaned her. c. Ms. Take's repayment will give the bank greater purchasing power than it originally loaned her. d. Ms. Take's repayment will give the bank the same purchasing power that it originally loaned her.

A

91. Which of the following is not correct? a. The U.S. economy has never experienced deflation. b. Since 1965, the U.S. nominal interest rate has exceeded the U.S. real interest rate. c. Since 1965, the U.S. economy has experienced rising consumer prices every year. d. During deflation, the real interest rate exceeds the nominal interest rate.

C

92. Which of the following is correct? a. Nominal and real interest rates always move together. b. Nominal and real interest rates never move together. c. Nominal and real interest rates do not always move together. d. Nominal and real interest rates always move in opposite directions.

D

93. In the United States in the late 1970s, nominal interest rates were high and inflation rates were very high. As a result, real interest rates were a. very high. b. high. c. low, but never negative. d. low, and in some years they were negative.

C

94. In the United States, nominal interest rates were a. high in the 1970s and 1990s. b. low in the 1970s and 1990s. c. high in the 1970s and low in the 1990s. d. low in the 1970s and high in the 1990s.

D

95. In the United States, real interest rates were a. high in the 1970s and 1990s. b. low in the 1970s and 1990s. c. high in the 1970s and low in the 1990s. d. low in the 1970s and high in the 1990s.