Interest is the financial cost of borrowing ____ capital in order to purchase ____ capital.
answer
- Money
- Real
question
In the market for money, the intersection of demand and supply determines which of the following?
answer
- The equilibrium price of money
- The interest rate
question
The ____ interest rate is the percentage increase in purchasing power that the borrower pays the lender, while the ____ interest rate is the percentage increase in money that the borrower pays the lender.
answer
- Real
- Nominal
question
Combining the demand for money and the supply of money determines the ____ rate of interest.
answer
equilibrium
question
The Fed's primary influence is on which of the following?
answer
- Money supply
- Interest rate
question
The nominal interest rate minus the rate of inflation equals what?
answer
The real interest rate
question
What is the name of the price that borrowers needs to pay lenders for transferring purchasing power to the future?
answer
interest
question
The intersection of demand and supply determines the ____ price for money.
answer
equilibrium
question
Which of the following are winners and losers from unanticipated inflation?
answer
Fixed-Income Receivers -- Losers; their real earnings will deteriorate when inflation occurs
Savers -- Losers; the real value of the assets deteriorate
Creditors -- Losers; the real value of their assets deteriorate
Flexible-Income Receivers -- Winners; they may get automatic COLA increases and nominal income may increase more than price level
Debtors -- Winners; real income increases
question
Inflation redistributes:
answer
real income
question
People who are ____ are hurt by unanticipated inflation.
answer
- Savers
- Creditors
- On fixed incomes
question
During hyperinflation, the value of money:
answer
falls rapidly
question
Which of the following can change the equilibrium interest rate?
answer
- Changes in the supply of money
- Changed in the demand of money
question
A measure of the value of a specified collection of goods and services in a given year is compared to the value of a highly similar collection of goods and services in a reference year is called a(n) ____ ____.
answer
price index
question
____ reduces the purchasing power of money.
answer
inflation
question
Which of the following explain why flexible-income receivers may be unaffected or benefit by unanticipated inflation?
answer
- Business owner's profits may rise if product prices rise faster than resource prices.
- Demand-pull inflation may cause some nominal incomes to increase faster than inflation and lead to real income increases.
- The receive COLAs.
- Their incomes may automatically increase when the CPI increases.
question
The real rate of interest is the ____ rate of interest minus the rate of inflation.
answer
nominal
question
Which of the following are combines to determine the equilibrium rate of interest?
answer
Demand for money and supply of money.
question
Changes in the demand for money, the supple of money, or both can change the equilibrium ____ rate.
answer
interest
question
The nominal interest rate is the percentage increase in money that the borrowers pays the lender while the real interest rate is:
answer
the percentage increase in purchasing power that the borrower pays the lender
question
Income that has been adjusted for changes in prices over time is called:
answer
real income
question
Inflation caused by an excess of total spending beyond the economy's capacity to produce is called:
answer
demand-pull inflation
question
People with flexible incomes may be:
answer
unaffected or benefit by unanticipated inflation
question
____ redistributes total real income.
answer
inflation
question
Too much spending chasing too few goods is the essence of ____- ____ inflation.
answer
demand; pull
question
The formula for the ____ ____ ____ is the price of the money recent market basket in a particular year divided by the price estimate of the market basket in 1982-1984 multiplied by 100.
answer
consumer price index
question
Which of the following best describes nominal interest rate?
answer
Interest rates that are quoted in the market.
question
When inflation occurs:
answer
each dollar of income will buy fewer goods and services than before
question
A price index:
answer
- Always includes a base year
- Measures the cost of purchasing a market basket of output across different years.
- Is normalized to 100 for the base year.
question
Which type of interest rate is used to make investment decisions?
answer
Real
question
____ GDP, or adjusted GDP, reflects changes in the price level.
answer
Real
question
Real income equals nominal income divided by the ____ ____.
answer
price index
question
The major source of cost-push inflation has been so-called ____ shocks.
answer
supply
question
The marginal ____ of investment is the interest rate paid for borrowed funds.
answer
cost
question
Inflation caused by an increase in the per-unit production costs at each level of total spending is called:
answer
cost-push
question
Real income will remain the same when:
answer
nominal income rises at the same percentage rate as does the price index.
question
If the inflation is 3% and the real interest rate is 5%, then the nominal interest rate is:
answer
8%
question
____ income will be affected if the change in the price level differs from the change in a person's nominal income.
answer
real
question
Social security payments automatically increase when the CPI goes up because of the ____.
answer
cost of living adjustments
question
If Sally's nominal income increases by 10% and the price level increases by 6%, Sally's real income will:
answer
rise 4%
question
Demand-Pull
answer
excess total spending
question
If the real economic growth is 3%, the inflation rate 5%, and the nominal interest rate 7%, then the real rate of interest is:
answer
2%
question
Income that is received as wages and is not adjusted for inflation is called:
answer
nominal income
question
Deflation is a great economic problem because:
answer
prices and wages fall but debts remain the same
question
Unanticipated inflation benefits debtors because:
answer
debtors pay back loans with less valuable dollars
question
The formula for calculating a price index is:
answer
The price of a market basket in a specific year divided by the price of the same market basket in the base year multiplied by 100
question
Nominal GDP divided by price index (in hundredths) equals:
answer
real GDP
question
When the expected rate of inflation is added to the real interest rate, the result is called the ____.
answer
Nominal interest rate
question
Coast-push inflation causes quantity demanded to fall, and firms respond by
answer
producing less, which increases unemployment
question
Which statements describe how even low levels of inflation may negatively affect real output?
answer
- People hold less cash and have to spend more time going to the bank or online to transfer money
- Businesses incur the costs of changing prices to reflect inflation
- Households and businesses spend time and effort distinguishing between real and nominal wages and interest rates
question
According to some economists, which of the following are positive effects of mild inflation?
answer
- Firms can more easily adjust real wages downward when the demand for their products fall.
- Firms earn higher profits
- Firms will have a strong demand for labor
- Firms have an incentive to expand their plants and equipment
question
Firms respond to cost-push inflation by producing ____ output, such that unemployment increases.
answer
less
question
One perspective on the relationship between demand-pull inflation and real output is that even low levels of inflation:
answer
may reduce real output because inflation diverts time and effort toward activities designed to protect against inflation
question
True or False: One perspective on how demand-pull inflation negatively effects output is that low levels of inflation may reduce real output because inflation diverts time and effort to activities designed to protect against inflation.
answer
True
question
Inflation that is expected is also referred to as ____ inflation and inflation that is unexpected is referred to as ____ inflation.
answer
- anticipated
- unanticipated
question
Which of the following best describes the nominal interest rate?
answer
Interest rates that are quoted in the market
question
The money supply is represented by a ____ line because the monetary authorities and financial institutions have provided the economy with some particular stock of money.
answer
vertical
question
Improper identification of the source of ____ may cause a delay in the government's decision to undertake policies to reduce excessive total spending.
answer
inflation
question
A decrease in the supply of money will ____ the equilibrium interest rate.
answer
raise
question
If the price of a market basket of goods in year 1 is $10 and $25 in year 3 and the base year is year 1, the price index for year 3 is ____.
answer
250
question
As the result of unanticipated inflation, workers are better off while firms are worse off if the actual inflation rate:
answer
is less than the expected inflation rate
question
Cost-push inflation will reduce supply and lower real output and employment which will eventually generate an economic ____.
answer
recession
question
____ GDP uses current prices while ____ uses prices adjusted for inflation.
answer
- nominal
- real
question
The use of money as a common denominator to sum output into a meaningful measure of GDP creates a problem because:
answer
The value of money itself changes
question
The real-world, more complex GDP price index used in the United States is called the chain-type annual ____ price index.
answer
weighted
question
The rocketing prices of imported oil in 1973-1974 and again in 1979-1980 are good illustrations of:
answer
cost-push inflation
question
which of the following statements best summarizes how inflation may redistribute real income?
answer
When a change in the price level differs from a change in a person's nominal income
question
Nominal GDP is not an accurate measure of the real level of economic activity in a country because:
answer
inflation distorts the real value of all goods and services produced
question
A lender who charges an inflation premium to a borrower is altering the redistribution of income due to:
answer
anticipated inflation
question
If nominal income rises by 10% from $100 to $110 and the price level index rises by 6% from 100 to 106 then, real income has to increase to:
answer
$103.77
question
Savers can balance their losses due to inflation if:
answer
the interest rate earned on savings is equal to or greater than the unexpected inflation
question
The biggest cost associated with unanticipated inflation is:
answer
the arbitrary redistribution of income and wealth
question
If Sue saved $1000 in the bank and earns 6% interest and inflation is greater than 6%, then the:
answer
real value or purchasing power of the savings will decline
question
demand-pull is most likely associated with a ____ GDP gap and a cost-push is more likely associated with a ____ GDP gap.
answer
positive; negative
question
____ inflation will continue for a long time, while ____ inflation is self-limiting.
answer
Demand-pull; cost-push
question
If the price of a basket of goods in year 1 is $20 and the price of the same basket of goods is $10 in the base year, then the price index for year 1 is:
answer
200
question
Cost-push inflation can contribute to a recession by:
answer
increasing prices which reduces output and leads to lower employment and lower real incomes.
question
Flexible-income receivers and debtors are unaffected or helped by inflation because:
answer
Inflation redistributes real income toward them and away from others
question
In order to avoid the problems created by using money values to measure GDP, when prices rise GDP should be ____ and then prices fall GDP should be ____.
answer
decreased; increased
question
Food and energy prices often complicate the measurement of inflation because:
answer
supply and demand often change creating temporary changes in prices
Haven't found what you need?
Search for quizzes and test answers now
Quizzes.studymoose.com uses cookies. By continuing you agree to our cookie policy
