ECON HW 2

Suppose an econ has an inflation rate of 3.3% and a bank makes a loan with an interest rate of 5.6%. What is the real interest rate?

2.3% 5.6%-3.3%= 2.3%

If Real GDP per capita grows at a rate of 1.9% per year, it will take ___ years to double

36.8 years 70/1.9 = 36.8

Crowding out occurs when A. governments must borrow funds which causes interest rates to rise and thus private investment is reduced. B. interest rates increase because the Federal Reserve reduces that​ economy's money supply. C. interest rates increase as firms spend a larger amount of resources on research and development. D. firms borrow more to expand operations which results in an increase in interest rates.

A

Nominal incomes generally increase with inflation because A. when inflation is​ anticipated, average nominal incomes also increase by the same percentage as the rate of inflation. B. when inflation is​ unanticipated, average nominal incomes also increase by the same percentage as inflation. C. when inflation is​ anticipated, real incomes also increase by the same percentage as inflation. D. even anticipated inflation causes average nominal incomes to fall as prices increase.

A

​Long-run growth in GDP is determined by A. capital, labor​ productivity, and technology. B. consumption, investment, and government expenditures. C. labor​ productivity, capital, and government expenditures. D. technology, investment, and consumption

A

Technological progress is affected by ​(check all that​ apply) A. private property rights B. entrepreneurship C. new software developments D. investment in capital E. population growth

A/B/C/D

If a​ 3-month Treasury bill pays​ 5.5% and the change in the consumer price index​ (CPI) is​ 4.7%, what is the real interest rate​ (the true return to​ lending)? A. 5.5% B. 0.8% C. 10.2% D. 4.7%

B

If the CPI was 207 in 2009 and 225 in​ 2013, what wage would someone who earned a​ $50,000 income in 2009 have to earn in 2013 in order to keep her purchasing power​ constant? A. $54,000 B. $54,348 C. $51,252 D. None of the above.

B

Since nominal incomes increase with​ inflation, A. unexpected inflation does not affect the purchasing power of the average consumer. B. expected inflation does not affect the purchasing power of the average consumer. C. expected inflation reduces the purchasing power of the average consumer. D. expected inflation increases the purchasing power of the average consumer.

B

The difference between the nominal interest rate and the real interest rate is A. the nominal interest rate is the stated interest rate whereas the real interest rate is the nominal interest rate plus the inflation rate. B. the nominal interest rate is the stated interest rate whereas the real interest rate is the nominal interest rate minus the inflation rate. C. the real interest rate is the stated interest rate whereas the nominal interest rate is the real interest rate minus the inflation rate. D. the nominal interest rate is the stated interest rate whereas the real interest rate is the nominal interest rate divided by the inflation rate.

B

The real interest rate A. is the interest rate that adjusts GDP for changes in prices. B. is equal to the nominal interest rate minus the inflation rate. C. is the interest rate that is quoted on a financial debt and a​ firm's assets. D. is equal to the inflation rate minus the nominal interest rate.

B

Long-run economic growth in the United States is best measured using A. nominal GDP per​ capita, the values for which represent constant purchasing power. B. nominal GDP per​ capita, which has been trending strongly upwards over the past century. C. real GDP per​ capita, which has been trending strongly upwards over the past century. D. real GDP per​ capita, which has increased every single year over the past century.

C

The difference between a nominal variable and a real variable is that A. nominal variables are economic variables that are adjusted for​ inflation, whereas real variables are valued in​ today's dollars. B.real variables are divided by the price and multiplied by 100 to obtain nominal variables. C. nominal variables are calculated in​ current-year prices and the real variables are measured in dollars of the base year for the price index to correct the effects of inflation. D. real variables are calculated in​ current-year prices and the nominal variables are measured in dollars of the base year to adjust for the effects of inflation.

C

The rule of 70 A. is a mathematical formula that is used to calculate the number of years it takes real GDP per capita or any other variable to increase by two hundred percent. B. states when an individual can be eligible for full social security benefits. C. is a mathematical formula that is used to calculate the number of years it takes real GDP per capita or any other variable to double. D. is a mathematical formula that is used to calculate the number of years it takes real GDP per capita or any other variable to quadruple.

C

Use the graph to help determine which one of the following statements regarding fluctuations in real GDP is​ true: A. The U.S. economy no longer experiences business cycles. B. During the past 50​ years, the U.S. economy has experienced sharp fluctuations in real GDP similar to what occurred during the early 1930s. C. In the first half of the twentieth​ century, real GDP had much more severe swings than in the second half of the twentieth century. D. Real GDP growth never falls below zero.

C

What is the general relationship between the business cycle and unemployment and​ inflation? A. During an​ expansion, unemployment and inflation increase. B. During a​ recession, unemployment and inflation decrease. C. During an​ expansion, unemployment falls and inflation increases. D. During a​ recession, unemployment and inflation increase.

C

The financial system of a country is important for​ long-run economic growth because A. most firms rely on their own retained earnings and do not use the financial system. B. firms that use the financial system predominantly are being reckless. C. people can increase their wealth very quickly under a healthy financial system. D. firms need the financial system to acquire funds from households.

D

the period between the low point of economic activity and the following high point is called

expansion

The high point of economic activity is called

peak

The period between the high point of economic activity and the following low point is called

recession

The low point of economic activity is called

trough