Topic 3 Practice

Deflationmeans _____, and disinflationmeans _____. A)the price level is falling; the inflation rate is falling. B)the inflation rate is falling; the price level is falling. C)both terms mean the price level is falling. D)both terms mean the inflation rate is falling.

A

Nominal GDP in 1970 was 1,015.5 billion, and in 1980 it was 2,732.0 billion. The GDP deflator is 42.0 for 1970 and 85.7 for 1980, where 1982 is the base year. Calculate the exact percent change in realGDP in the decade from 1970 to 1980. Round off to the nearest percentage point. A) 32% B) 104% C) 132% D) 169%

A

Suppose that from one year to the next, all prices double, and the quantities produced of all final goods and services double. The GDP deflator and the CPI both show _____% inflation, and real GDP increases by _____%. A) 100; 100 B) 100; 200 C) 200; 100 D) 200; 200

A

Suppose that prices of consumption goods are rising faster than prices of investment goods. Then A)the inflation rate will be higher if computed using the CPI than if computed using the GDP deflator. B)the inflation rate will be lower if computed using the CPI than if computed using the GDP deflator. C)the CPI and GDP deflator will yield the same rate of inflation. D)we cannot tell whether the inflation rate computed using the CPI will be higher or lower than the inflation rate computed using the GDP deflator.

A

Suppose the inflation rate rises unexpectedly. A)Borrowers gain and lenders lose. B)Lenders gain and borrowers lose. C)Everyone gains. D)Everyone loses.

A

Suppose the current value of the CPI is 132. If the inflation rate over the next year is 25%, then a year from now the value of the CPI will be A) 157 B) 165 C) 106 D) 125

B

The nominal interest rate is 25%, and the inflation rate is 15%. The exact real interest rate (decimals rounded) is _____%. A) 7.9 B) 8.7 C) 9.3 D) 10

B

Which of the following is true? A)Unanticipated inflation causes wealth to be transferred from the borrower to the lender. B)Unanticipated inflation causes wealth to be transferred from the lender to the borrower. C)Anticipated inflation causes wealth to be transferred from the borrower to the lender. D)Anticipated inflation causes wealth to be transferred from the lender to the borrower.

B

n 2010, the GDP deflator was 100,and in 2012, the GDP deflator was 125. In 2010, the cost of an iPad was $600. In 2012, the cost of an iPad was $750. (Ignore the fact that an iPad3 is not the same as an iPad2. View all iPads as the same good.) In 2010, the cost of a Honda Fit was $10,000. In 2012, the cost of a Honda Fit was $13,000. Which of the following is true? From 2010 to 2012 (i) an iPad became relatively cheaper compared to a Honda Fit. (ii) an iPad's real price increased. (iii) aniPad's nominal price increased. A) (i) and (ii) B) (i) and (iii) C) (ii) and (iii) D) all

B

Lenders gain when the inflation rate experiences an A)anticipated increase. B)anticipated decrease. C)unanticipated decrease. D)unanticipated increase

C

Which of the following statements is true? A)If all relative prices of goods and services in the economy remain the same, then the economy will experience no inflation. B)If any relative prices of goods and services in the economy change, then the economy will experience inflation. C)If the price of each final good and service increases by the same percentage amount, then the inflation rate equals that percentage amount. D)All of the above are true.

C

A lender thinks inflation is going to be 12% per year. A borrower thinks inflation is going to be 8%. They agree that if there were no inflation, the interest rate on the loan would be 3%. Which of the following is true? The lowest exact nominal interest rate the lender will accept is ______ percent, and the highest exact nominal interest rate the borrower will pay is ______ percent. (Round to the nearest one-tenth of a percentage point.) A) 8.7; 4.9 B) 15; 11 C) 9; 5 D) 15.4; 11.2

D

Consider the nominal interest rate (i), the real interest rate (r), and the inflation rate (). Assume the inflation rate is anticipated. Which of the following statements is true? A)If a country experiences positive inflation, currency (paper money) loses value over time. B)If a country anticipatespositive inflation, the nominal interest rate will be set above the real interest rate. C)If a country experiences deflation, the real interest rate on currency (paper money) is positive. D)All of the above

D

Country A is experiencing 20% per year inflation, and the nominal interest rate is 23%. Country B is experiencing 3% per year inflation, and the nominal interest rate is 6%. A)The exact real interest rate is slightly less than 3% in Country A, and slightly greater than 3% in country B. B)The exact real interest rate is 3% in both countries. C)The exact real interest rate is higher in Country A than it is in Country B. D)The exact real interest rate is lower in Country A than it is in Country B.

D

If the inflation rate is positive, we may infer that A)the relative prices of some goods increased B)the relative prices of some goods decreased C)the prices of all goods increased at the same rate D)none of the above

D

Which of the following statements is true? A)If there are no relative price changes, there is no inflation. B)If there is no inflation, then there are no relative price changes. C)If any good experiences a relative price increase, then all goods must experience a relative price increase. D)If any good experiences a relative price increase, then at least one good must experience a relative price decrease.

D

The government borrows by issuing and selling government bonds to the public. Which of the following is true? A)If the inflation rate is positive, the government gains and buyers of the bonds lose. B)The only scenario where the dollar amounts of interest and repayment of principal on the bonds is "fair" is if the inflation rate is zero. C)If the inflation rate decreases unexpectedly after the bonds are issued and sold, the government gains and buyersof the bonds lose. D)If the inflation rate increases unexpectedly after the bonds are issued and sold, the government gains and buyers of the bonds lose.

d