54) If the nominal interest rate is greater than the real interest rate,
A) it is an indication of economic growth.
B) inlation must be occurring.
C) lenders must lose because they can only make loans using the real interest rate.
D) the real interest rate must be negative.
E) None of the above answers is correct because it is not possible for the nominal interest
rate to exceed the real interest rate.
Skill: Level 3: Using models
Section: Checkpoint 7.3
Status: Old
AACSB: Relective thinking
55) The real interest rate is negative if the inlation rate
A) exceeds the nominal interest rate.
B) exceeds the real interest rate.
C) is equal to the nominal interest rate.
D) is less than the nominal interest rate.
E) equals zero.
Skill: Level 3: Using models
Section: Checkpoint 7.3
Status: Old
AACSB: Relective thinking
56) Which of the following is true?
A) The real interest rate is always positive.
B) The nominal interest rate is usually negative.
C) The real interest rate can be negative.
D) The real interest rate can never be zero.
E) The nominal interest rate is usually less than the real interest rate.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.3
Status: Old
AACSB: Relective thinking
71
57) If the CPI is 170 at the beginning of the year and 181 at the end, and a bank is paying a
nominal interest rate of 6 percent, we see that
A) the real interest rate is negative.
B) the interest nominal rate is negative.
C) the real interest rate is positive and is less than 1 percent.
D) the real interest rate is positive and is larger than 1 percent.
E) the real interest rate is equal to zero.
Skill: Level 4: Applying models
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
58) If the bank returns $1,060 on the $1,000 deposited for a year during which inlation
was 4 percent, the real interest rate is
A) 6 percent.
B) 10 percent.
C) -2 percent.
D) 2 percent.
E) 16 percent.
Skill: Level 4: Applying models
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
59) Citicorp charges an 11 percent interest rate on all new car loans. If the inlation rate is
6 percent, Citicorp receives a real interest rate of
A) 11 percent.
B) 6 percent.
C) 1.83 percent.
D) 5 percent.
E) 0.54 percent.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
72
60) Chloe has a $15,000 personal loan at a nominal interest rate of 8 percent. If the
inlation rate is 3 percent, what is the real interest rate paid on the loan?
A) 8 percent
B) 5 percent
C) 11 percent
D) 3 percent
E) 2.67 percent
Skill: Level 2: Using deinitions
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
61) Caroline has saved $100,000 for her retirement. She earned 4 percent interest on that
money during the year 2013. If the inlation rate was 1 percent in 2013, what was
Caroline’s real interest rate?
A) $4,000
B) 4 percent
C) 3 percent
D) 1 percent
E) 5 percent
Skill: Level 3: Using models
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
62) If the real interest rate is 5 percent when the inlation rate is 4 percent, the nominal
interest rate is
A) 1 percent.
B) 9 percent.
C) 20 percent.
D) .80 percent.
E) 1.25 percent.
Skill: Level 3: Using models
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
73
63) If the real interest rate is 7 percent when the nominal interest is 12 rate is percent, the
inlation rate is
A) -5 percent.
B) 5 percent.
C) 19 percent.
D) 1.7 percent.
E) 7 percent.
Skill: Level 3: Using models
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
64) If you have a mortgage on your house at 6 percent and the inlation rate when the
mortgage was acquired was 3 percent but has since increased and is now 8 percent per
year; the current real interest rate is
A) 14 percent per year.
B) 6 percent per year.
C) 0 percent per year.
D) -2 percent per year.
E) 8 percent per year.
Skill: Level 3: Using models
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
65) The table above has information about the CPI, nominal wage rate, and nominal
interest rate for the country of Syldavia for the years 2010 to 2012. The reference base
year is 2010. The inlation rate in Syldavia from 2010 to 2011 was
A) -5.0 percent.
B) 5.0 percent.
C) 9.5 percent.
D) 3.0 percent.
E) -9.5 percent.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
66) The table above has information about the CPI, nominal wage rate, and nominal
interest rate for the country of Syldavia for the years 2010 to 2012. The reference base
year is 2011. The inlation rate in Syldavia from 2011 to 2012 was
A) 8.0 percent.
B) 8.4 percent.
74
C) 3.0 percent.
D) 4.0 percent.
E) 10.3 percent.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
67) The table above has information about the CPI, nominal wage rate, and nominal
interest rate for the country of Syldavia for the years 2010 to 2012. The reference base
year is 2010. The real wage rate in Syldavia during 2011 was
A) $14.00.
B) $15.00.
C) $15.79.
D) $14.22.
E) $14.25.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
68) The table above has information about the CPI, nominal wage rate, and nominal
interest rate for the country of Syldavia for the years 2010 to 2012. The reference base
year is 2010. The real interest rate in Syldavia during 2012 was
A) 2.8 percent.
B) 5.2 percent.
C) 9.0 percent.
D) 0.6 percent.
E) 8.4 percent.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
75
69) The CPI was 225 in 2008 and 232.2 in 2009. The nominal interest rate during this
period was 1.4 percent. What was the real interest rate during this period?
A) 3.2 percent
B) 1.8 percent
C) 4.6 percent
D) -3.2 percent
E) -1.8 percent
Skill: Level 2: Using deinitions
Section: Checkpoint 7.3
Status: New
AACSB: Analytical thinking
70) If we look at real and nominal interest rates in the United States since 1971, we see
that
A) the nominal interest rate has always been less than the real interest rate because of
inlation.
B) the real interest rate has almost always been less than the nominal interest rate because
of inlation.
C) at times the nominal interest rate has been greater than the real interest rate and at
times has been less than it.
D) the diference between the nominal and real interest rates has widened during the
1990s because of inlation.
E) both the nominal and real interest rates were negative in the highly inlationary 1970s.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.3
Status: Old
AACSB: Written and oral communication
71) Looking at real and nominal interest rates in the United States since 1971, we see that
the
A) nominal interest rate has at times been negative.
B) real interest rate has been greater than 10 percent for most years.
C) real interest rate has at times been negative.
D) real interest rate was above 5 percent during the low inlation of the 1970s.
E) real interest is generally greater than the nominal interest rate.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.3
Status: Old
AACSB: Written and oral communication
76
72) In 2011, apples cost $1.49 a pound. Suppose the CPI was 120 in 2011 and 140 in 2012.
If there is no change in the real price of an apple in 2012, what is the price of a pound of
apples in 2012?
A) $2.74
B) $1.69
C) $1.66
D) $1.74
E) $1.28
Skill: Level 3: Using models
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
73) In 1970 the CPI was 39, and in 2000 it was 172. A local phone call cost $0.10 in 1970.
What is the price of this phone call in 2000 dollars?
A) $1.42
B) $0.39
C) $1.72
D) $0.44
E) $0.23
Skill: Level 2: Using deinitions
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
74) Nominal GDP is $12.1 trillion and real GDP is $11.0 trillion. The GDP price index is
A) 90.1.
B) 121.
C) 1.10.
D) 91.0.
E) 110.
Skill: Level 3: Using models
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
77
75) If real GDP is greater than nominal GDP then the GDP price index
A) is greater than 100.
B) is less than 100.
C) is equal to 100.
D) is either equal to or greater than 100.
E) None of the above answers is correct because we need to choose a new base year.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
76) Nominal GDP was $12.1 trillion and real GDP is $11 trillion. The GDP price index is
________.
A) 90.1
B) 121.0
C) 1.10
D) 91.0
E) 110.0
Skill: Level 2: Using deinitions
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
77) The nominal wage rate is the
A) minimum hourly wage that a company can legally pay a worker.
B) average hourly wage rate measured in the dollars of a given reference base year.
C) minimum hourly wage rate measured in the dollars of a given reference base year.
D) average hourly wage rate measured in current dollars.
E) wage rate after inlation has been adjusted out of it.
Skill: Level 1: Deinition
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
78
78) The average starting salary for a history major is $29,500. If the CPI was 147.5, the
real salary is
A) $200.00 an hour.
B) $20,000.
C) $35,000.
D) $43,513.
E) $14,750.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
79) Since 1981, the
A) real wage rate increased steadily.
B) nominal wage rate increased and the real wage rate did not change by very much.
C) real wage rate increased more than the nominal wage rate.
D) nominal wage rate increased at an uneven pace whereas the increase in the real wage
rate was steady and constant.
E) nominal wage rate and real wage rate both decreased.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.3
Status: Old
AACSB: Relective thinking
80) The real interest rate is equal to the
A) nominal interest rate plus the inlation rate.
B) nominal interest rate minus the inlation rate.
C) nominal interest rate times the inlation rate.
D) nominal interest rate divided by the inlation rate.
E) inlation rate minus the nominal interest rate.
Skill: Level 1: Deinition
Section: Checkpoint 7.3
Status: Old
AACSB: Relective thinking
79
81) You borrow at a nominal interest rate of 10 percent. If the inlation rate is 4 percent,
then the real interest rate is
A) the $10 in interest you have to pay.
B) 16 percent.
C) 2.5 percent.
D) 6 percent.
E) 14 percent.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
82) In the United States for the last 40 years, the nominal interest rate
A) and the real interest rate both decreased in almost every year.
B) and the real interest rate were both constant in almost every year.
C) was constant in most years and the real interest rate luctuated.
D) exceeded the real interest rate in virtually all the years.
E) exceeded the real interest rate in about one half of the years and the real interest rate
was greater than the nominal interest rate in the other half of the years.
Skill: Level 2: Using deinitions
Section: Checkpoint 7.3
Status: Old
AACSB: Written and oral communication
80