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216. The nominal interest rate is 5 percent and the real interest rate is 3 percent. What is the inflation rate?
a.
8 percent
b.
15 percent
c.
2 percent
d.
1.7 percent
217. If the nominal interest rate is 5 percent and there is a deflation rate of 3 percent, what is the real interest rate?
a.
8 percent
b.
2 percent
c.
15 percent
d.
1.7 percent
218. If the real interest rate is 6 percent and the price level is falling at a rate of 2 percent, what is the nominal interest
rate?
a.
4 percent
b.
6 percent
c.
8 percent
d.
10 percent
219. The real interest rate is 4 percent and the nominal interest rate is 6 percent. Is there inflation or deflation? What is the
inflation or deflation rate?
a.
deflation; 2 percent
b.
deflation; 10 percent
c.
inflation; 2 percent
d.
inflation; 10 percent
220. If the nominal interest rate is 15 percent and the inflation rate is 5 percent, then what is the real interest rate?
a.
10 percent
b.
20 percent
c.
3 percent
d.
5 percent
221. If the nominal interest rate is 8 percent and expected inflation is 2.5 percent, then what is the real interest rate?
a.
10.5 percent
b.
20 percent
c.
5.5 percent
d.
3.2 percent
222. Which of the following combinations of real interest rates and inflation implies a nominal interest rate of 6 percent?
a.
a real interest rate of 3 percent and an inflation rate of 2 percent.
b.
a real interest rate of 7 percent and an inflation rate of 1 percent.
c.
a real interest rate of 5 percent and an inflation rate of 1 percent.
d.
a real interest rate of 6 percent and an inflation rate of 1 percent.
223. Which of the following combinations of nominal interest rates and inflation implies a real interest rate of 7 percent?
a.
a nominal interest rate of 5 percent and an inflation rate of 4 percent.
b.
a nominal interest rate of 4 percent and an inflation rate of 3 percent.
c.
a nominal interest rate of 8 percent and an inflation rate of 1 percent.
d.
a nominal interest rate of 14 percent and an inflation rate of 2 percent.
224. In which case below is the real interest rate the highest?
a.
the nominal interest rate = 1% and inflation = 3%
b.
the nominal interest rate = 6% and inflation = 4%
c.
the nominal interest rate = 2% and inflation = -1%
d.
the nominal interest rate = 2% and inflation = 1%
225. In which case below does a person’s purchasing power from saving increase the most?
a.
the nominal interest rate = 10% and inflation = 8%
b.
the nominal interest rate = 9% and inflation = 6%
c.
the nominal interest rate = 8% and inflation = 4%
d.
the nominal interest rate = 7% and inflation = 2%
226. Walter puts money in a savings account at his bank earning 3.5 percent. One year later he takes his money out and
notes that while his money was earning interest, prices rose 1.5 percent. Walter earned a nominal interest rate of
a.
3.5 percent and a real interest rate of 5 percent.
b.
3.5 percent and a real interest rate of 2 percent.
c.
5 percent and a real interest rate of 3.5 percent
d.
5 percent and a real interest rate of 2 percent
227. Shawn puts money into an account. One year later he sees that he has 6 percent more dollars and that his money will
buy 5 percent more goods.
a.
The nominal interest rate was 11 percent and the inflation rate was 5 percent.
b.
The nominal interest rate was 6 percent and the inflation rate was 5 percent.
c.
The nominal interest rate was 5 percent and the inflation rate was -1 percent.
d.
The nominal interest rate was 6 percent and the inflation rate was 1 percent.
228. Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money
will buy 4 percent more goods.
a.
The nominal interest rate was 10 percent and the inflation rate was 6 percent.
b.
The nominal interest rate was 6 percent and the inflation rate was 2 percent.
c.
The nominal interest rate was 4 percent and the inflation rate was 2 percent.
d.
The nominal interest rate was 10 percent and the inflation rate was 4 percent.
229. Darla puts her money into a bank account that earns interest. One year later she sees that the account has 6 percent
more dollars and that her money will buy 7.5 percent more goods.
a.
The nominal interest rate was 13.5 percent and the inflation rate was 7.5 percent.
b.
The nominal interest rate was 13.5 percent and the inflation rate was 1.5 percent.
c.
The nominal interest rate was 6 percent and the inflation rate was -1.5 percent.
d.
The nominal interest rate was 6 percent and the inflation rate was 7.5 percent.
230. Banks advertise
a.
the real interest rate, which is how fast the dollar value of savings grows.
b.
the real interest rate, which is how fast the purchasing power of savings grows.
c.
the nominal interest rate, which is how fast the dollar value of savings grows.
d.
the nominal interest rate, which is how fast the purchasing power of savings grows.
231. If a country experienced deflation, then
a.
the nominal interest rate would be greater than the real interest rate.
b.
the real interest rate would be greater than the nominal interest rate.
c.
the real interest rate would equal the nominal interest rate.
d.
nominal GDP would be smaller than the money supply.
232. When deflation exists,
a.
the real interest rate is less than the nominal interest rate.
b.
the real interest rate is greater than the nominal interest rate.
c.
the real interest rate and inflation are less than the nominal interest rate.
d.
prices rise.
233. In the U.S., from the early 1980s through the early 1990s,
a.
both inflation and nominal interest rates rose.
b.
both inflation and nominal interest rates fell.
c.
the inflation rate fell and the nominal interest rate rose.
d.
the inflation rate rose and the nominal interest rate fell.
234. From the early 1980’s through the 1990’s, the nominal interest rate
a.
fell because the Fed got inflation under control.
b.
fell because the Fed let inflation get out of control.
c.
rose because the Fed got inflation under control.
d.
rose because the Fed let inflation get out of control.
235. The Fisher effect says that
a.
the nominal interest rate adjusts one for one with the inflation rate.
b.
the growth rate of the money supply is negatively related to the velocity of money.
c.
real variables are heavily influenced by the monetary system.
d.
All of the above are correct.
236. Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate rises, then
a.
both the nominal and the real interest rate rise.
b.
neither the nominal nor the real interest rate rise.
c.
the nominal interest rate rises, but the real interest rate does not.
d.
the real interest rate rises, but the nominal interest rate does not.
237. Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate falls, then
a.
both the nominal and the real interest rate fall.
b.
neither the nominal nor the real interest rate fall.
c.
the nominal interest rate falls, but the real interest rate does not.
d.
the real interest rate falls, but the nominal interest rate does not.
238. When money is neutral, which of the following increases when the money supply growth rate increases?
a.
real output growth
b.
real interest rates
c.
nominal interest rates
d.
the money supply divided by the price level
239. Which of the following can a country increase in the long run by increasing its money growth rate?
a.
the nominal wage.
b.
real output.
c.
real interest rates.
d.
the real wage.
240. Suppose that monetary neutrality and the Fisher effect both hold and the money supply growth rate has been the
same for a long time. Other things the same a higher money supply growth would be associated with
a.
both higher inflation and higher nominal interest rates.
b.
a higher inflation rate, but not higher nominal interest rates.
c.
a higher nominal interest rate, but not higher inflation.
d.
neither a higher inflation rate nor a higher nominal interest rate.
241. Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate
increases
a.
the inflation rate and nominal interest rates.
b.
the inflation rate, but not nominal interest rates.
c.
nominal interest rates, but not the inflation rate.
d.
neither the inflation rate nor nominal interest rates.
242. Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate
increases
a.
the inflation rate and real interest rates.
b.
the inflation rate, but not real interest rates.
c.
real interest rates, but not the inflation rate.
d.
neither the inflation rate nor real interest rates.
243. Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate
increases
a.
the inflation rate and growth of real GDP.
b.
the inflation rate but not the growth rate of real GDP.
c.
the growth rate of real GDP, but not the inflation rate.
d.
neither the inflation rate nor the growth rate of real GDP.
244. Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate
increases
a.
the inflation rate and the nominal interest rate by the same number of percentage points.
b.
nominal interest rates but by less than the percentage point increase in the inflation rate.
c.
the inflation rate but not the nominal interest.
d.
neither the inflation rate nor the nominal interest rate.
245. According to monetary neutrality and the Fisher effect, an increase in the money supply growth rate eventually
increases
a.
inflation and nominal interest rates, but does not change real interest rates.
b.
inflation, nominal interest rates, and real interest rates.
c.
inflation and real interest rates, but does not change nominal interest rates.
d.
nominal interest rates and real interest rates, but does not change inflation.
246. The Fisher effect
a.
says the government can generate revenue by printing money.
b.
says there is a one for one adjustment of the nominal interest rate to the inflation rate.
c.
explains how higher money supply growth leads to higher inflation.
d.
explains how prices adjust to obtain equilibrium in the money market.
247. The Fisher effect is crucial for understanding changes over time in
a.
the nominal interest rate.
b.
the real interest rate.
c.
the inflation rate.
d.
the unemployment rate.
248. Suppose an economy produces only smart phones. If the price level falls, the value of currency
a.
rises, because one unit of currency buys more smart phones. This is called deflation.
b.
rises, because one unit of currency buys more smart phones. This is called inflation.
c.
falls, because one unit of currency buys fewer smart phones. This is called deflation.
d.
falls, because one unit of currency buys fewer smart phones. This is called inflation.
249. Consider the economy of Burgerland, which only produces hamburgers. If the velocity of money is 25, the price of a
hamburger is $5, and the quantity of money in the economy is $500, how many hamburgers did Burgerland produce?
a.
2,000
b.
2,500
c.
2,750
d.
3,000
250. Which of the following would decrease the value of money?
a.
Money demand exceeds money supply
b.
The Federal Reserve sells government bonds
c.
The velocity of money decreases
d.
The price level decreases
251. Ashley puts money in a savings account at her bank earning 2 percent interest. One year later she takes her money
out and notes that prices rose 3 percent. Ashley earned a
a.
real interest rate of -1 percent due to inflation.
b.
real interest rate of 1 percent due to inflation.
c.
nominal interest rate of -1 percent due to inflation.
d.
nominal interest rate of 1 percent due to inflation.
