7. In 2000 the nominal rate of interest was 7 percent. The rate of inflation was 2.7 percent. The real rate d. 2.7 percent interest was: b. 7 percent. c. 4.3 percent a. 9.7 percent.
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- You put money into an account that earns a 8 percent nominal interest rate. The inflation rate is 3 percent, and your marginal tax rate is 25 percent. What is your after-tax real rate of interest? a. 3 percent b. 3.75 percent c. 5 percent d. 6 percent37. What type of inflation is caused by an increase in the purchasing power of people? a.Cost push b.Chronic c.Built in d.Demand pull4.In 2020, interest rates were 9.2% and the rate of inflation was 11%. What was the realinterest rate in 2020? How would the purchasing power of your savings have changed overthe year?
- 4. If the nominal interest rate is fixed over the life of a loan, the consequences of inflation being higher than expected are that A. the real interest rate will be higher than expected, and the lender will benefit. B. the real interest rate will be lower than expected, and the lender will benefit. C. the real interest rate will be lower than expected, and the borrower will benefit. D. the real interest rate will be higher than expected, and the borrower will benefit. E. the real interest rate will remain unchanged over the life of the loan, and the lender will benefit at the expense of the borrower. 5. Under what circumstance would the nominal interest rate be positíve but the real interest rate be negative? A. Expected inflation is negative. B. Expected inflation is zero. C. Expected inflation is exactly equal to the nominal interest rate. D. Expected inflation is greater than the nominal interest rate.12. Inflation a. Decreases everyone's nominal income. b. Decreases everyone's real income. c. Redistributes income in a manner in which the benefits of inflation to the community exceed the costs. d. Redistributes income in an arbitrary fashion.From the data in the table below, what was the rate of inflation for the year ended December 2009? Select one: a. -0.2 percent b. 2.0 percent c. 2.1 percent d. 4.7 percent
- 3. The rate of inflation as of Thursday is 6 %, this is expected to continue. Sylvia wants to earn a real rate of return of 10% on her money. The bank is offering her 14% for deposits. a. should Sylvia accept this rate? Why or why not? b. If Sylvia expects this inflation rate to decrease to 3%, would your answer in "a" change?14. Which of these government actions is designed to lower inflation? E. hiring more government workers G. Increasing government loans H. selling government securities J. increasing government spendingUnder which of the following conditions would you prefer to be the borrower? a. The nominal rate of interest is 20% and the inflation rate is 25%. b. The nominal rate of interest is 15% and the inflation rate is 14%. c. The nominal rate of interest is 12% and the inflation rate is 9%. d. The nominal rate of interest is 5% and the inflation rate is 1%.
- 6. Taylor just received a 3% pay increase but the current rate of inflation is 4%. We can say that Taylor’s real wage has Select one: a. remained the same b. fallen by 1% c. risen by 1%.1. You deposit $5000 in the bank for one year. CASE 1: inflation = 0%, nom. interest rate = 20% CASE 2: inflation = 10%, nom. interest rate = 30% a. In which case does the real value of your deposit grow the most? Assume the tax rate is 15%. b. In which case do you pay the most taxes? c. Compute the after-tax nominal interest rate, then subtract off inflation to get the after-tax real interest rate for both cases.49. Assume that the inflation rate over a ten-year period is 15% in each year. Which of the following groups is going to be hurt the most from this inflation? A. Banks who make variable interest rate loans. B. Persons who own lots of gold and land. C. Retired persons living on fixed incomes. D. Small business owners who can adjust their product prices.
