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erinbee835Lv1

1 Mar 2020

Suppose Simone is an avid reader and buys only comic books. Simone deposits $4,000 in a bank account that pays an annual nominal interest rate of 5%. Assume this interest rate is fixed—that is, it won't change over time. At the time of her deposit, a comic book is priced at $10.00. Initially, the purchasing power of Simone's $4,000 deposit is____________________ comic books.

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erinhare45Lv2

2 Jun 2021

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aplia ch 11

5. Interest, inflation, and purchasing power

Suppose Valerie is a sports fan and buys only baseball caps. Valerie deposits $3,000 in a bank account that pays an annual nominal interest rate of 5%. Assume this interest rate is fixedï¿½that is, it won't change over time. At the time of her deposit, a baseball cap is priced at $10.00.

Initially, the purchasing power of Valerie's $3,000 deposit is

baseball caps.

For each of the annual inflation rates given in the following table, first determine the new price of a baseball cap, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Valerie's deposit after one year in the first row of the table for each inflation rate. Finally, enter the value for the real interest rate at each of the given inflation rates.

Hint: Round your answers in the first row down to the nearest baseball cap. For example, if you find that the deposit will cover 20.7 baseball caps, you would round the purchasing power down to 20 baseball caps under the assumption that Valerie will not buy seven-tenths of a baseball cap.

	Annual Inflation Rate (FILL IN BLANKS BELOW)
	0%	5%	8%
Number of Caps Valerie Can Purchase after One Year	________	________	________
Real Interest Rate

When the rate of inflation is less than the interest rate on Valerie's deposit, the purchasing power of her deposit over the course of the year.

Ryan savedâ $50,000 last year in his bank account so that he could buy a car this year. In thisâ case, money served the function of aâ ________.

means of deferred payment

unit of account

store of value

medium of exchange

A bank is said to have enough liquidityâ if:

it holds deposits amounting to at leastâ $100,000.

it operates for seven days a week for more than 12 hours a day.

it has enough funds to conduct its

dayminusâtominusâday

businesses and meet the regulatory requirements.

the value of its assets exceeds the value of its liabilities by at leastâ $50,000.

Consider an economy that only produces wooden chairs. Inâ 2012, the economy produced 100 wooden chairs priced atâ $10 each. The nominal GDP of the economy for the year 2012 willâ be:

â$10,000.

â$10.

â$100.

â$1,000.

Hyperinflationary episodes are always related to extremely rapid growthâ of:

real GDP.

money supply.

interest rates.

money demand.

Which of the following financial organizations have the ability to influence the supply of reserves in the Unitedâ States?

The World Bank

The Fed

Only private commercial banks

Only public sector banks

A retired worker receives a pension that is not indexed to inflation. Which of the following will happen if the rate of inflationâ rises?

The retiree will be better off.

Theâ retiree's purchasing power will fall.

The shareholders of the firm in which he worked will lose.

Theâ retiree's purchasing power will increase.

Assuming all elseâ equal, what is likely to happen to the demand curve for reserves in an economy if it goes through a period of rapidâ expansion?

There will be a n upward movement along the demand curve for reserves.

The demand curve for reserves will shift to the left.

There will be a downward movement along the demand curve for reserves.

The demand curve for reserves will shift to the right.

If the nominal interest rate in an economy isâ 9% and the expected inflation rate isâ 6%, then the expected real interest rate in the economyâ is:

â15%.

â9%.

â6%.

â3%.

If nominal GDPâ increases, what might be the cause of thisâ increase?

If nominal GDPâ increases, this could be causedâ by:

â(Select

all that

apply.â)

An increase in the price level

Deflation

An increase in real GDP

A decrease in the price level

Given the followingâ information, what is the growth rate of nominalâ GDP?

Upper Y 0Y0

real GDPâ =

â$10001000

â(in millions)

Upper Y 1Y1

real GDPâ =

â$11001100

â(in millions)

Upper Y 0Y0

price levelâ = 120120

Upper Y 1Y1

price levelâ = 130130The growth rate of nominal GDP is

nothing â%.

â (Round

your answer to the nearest

hundredth.â)

According to the quantity theory ofâ money, what must the growth rate of the money supply be given the followingâ information?

The growth rate of real GDP is

1.01.0â%.

The growth rate of nominal GDP is

3.83.8â%.

The nominal interest rate is

7.17.1â%.

The real interest rate is

4.34.3â%.

The money supplyâ (M2) is

â$10 comma 61210,612

â(in billions)According to the quantity theory ofâ money, the growth rate of the money supply must be

nothing â%.

â (Round

your answer to the nearest

tenth.â)

According to the quantity theory ofâ money, what is the inflationâ rate?

Use the information given above and calculate the inflation rate.

According to the quantity theory ofâ money, the inflation rate is

nothing â%.

â (Round

your answer to the nearest

tenth.â)

According to the quantity theory ofâ money, the inflation rate is

the ratio of money supply to nominal GDP.

the gap between the growth rate of money supply and the growth rate of real GDP.

the gap between the nominal and real interest rates.

the gap between the growth rate of money supply and the growth rate of nominal GDP.

If the inflation rate is

positivepositiveâ,

what must beâ true?

The growth rate of nominal GDP

greater than>

the growth rate of money supply.

The growth rate of real GDP

less than<

the growth rate of money supply.

The growth rate of real GDP

greater than>

the growth rate of money supply.

The growth rate of nominal GDP

less than<

the growth rate of money supply.

An open market operation isâ ____________.

the process of sellingâ Fed-issued IOUs between banks.

an exchange between a private bank and the Federal Reserve where the Fed buys or sells government bonds to private banks.

where a bank borrows reserves or bonds from the Federalâ Reserve's discount window.

an exchange between private banks where the banks buy or sell bonds to each other.

The Federal Reserve conducts open market operations when it wants toâ ____________.

change the liquidity levels of banks.

influence the discount rate.

influence the federal funds rate.

change the level of reserves it holds for banks.

When the Fed

sellssells

government bonds

toto

privateâ banks, it

â¼

the electronic reserves that banks hold.

lavendersquirrel414

$30,000 QUESTION 3 Imagine you live in a society with progressive taxation. Your friend makes half of your salary and pays 20 percent in income taxes. Which rate most likely would be your income tax rate? (5 points) 2 percent 10 percent 20 percent 40 percent QUESTION 4 02_08_g4_q1.png Look at the bar graph. What kind of tax is depicted here? (5 points) Flat Proportional Progressive Regressive QUESTION 5 Which of these is an example of indirect tax? (5 points) Corporate income tax Gasoline tax Paycheck withholdings Property tax QUESTION 6 02_08_g6_q1.jpg Look at the graph. How does the tax shown differ from a proportional tax? (5 points) A progressive tax increases with income level; a proportional tax decreases with income level. A regressive tax decreases with income level; a proportional tax is the same percentage for everyone. A progressive tax increases with income level; a proportional tax is the same percentage for everyone. A regressive tax is the same percentage for everyone; a proportional tax increases with income level. QUESTION 7 Which of these investments may pay dividends? (5 points) Bonds Savings accounts Certificates of deposit Stocks QUESTION 8 02_08_g8_q1.jpg Assume that the blue section (D) of the chart stands for stocks and the red (A) for mutual funds. This would most likely represent the portfolio of a (5 points) young investor middle-aged investor nearly-retired investor elderly investor QUESTION 9 Assume that the blue section (D) of the chart stands for stocks and the red (A) for mutual funds. This would most likely represent the portfolio of a (5 points) young investor middle-aged investor nearly-retired investor elderly investor QUESTION 9 Which of the following investment plans best reflects diversification? (5 points) Ben has an investment portfolio with numerous stocks and futures. Kenya invests in stocks, bonds, and mutual funds. Jeremiah takes out a CD and keeps the rest of his money in a savings account. Molly splits her investment between mutual funds and a money market account. QUESTION 10 Rudy is a 52-year-old freelance writer who wants a short-term, low-risk investment with low liquidity. Which of these investment vehicles should he consider? (5 points) CD IRA Mutual fund Stocks QUESTION 11 Hometown Bank Products Minimum Opening Deposit Interest Paid per Year Monthly Fee Checking $100.00 0.00% $0.00 Savings $250.00 0.50% $0.00 Platinum Savings $1,000.00 0.75% $10.00 CD (1year) $1,000.00 1.05% $0.00 CD (5 year) $1,000.00 1.80% $0.00 Money Market $1,000.00 0.75% $10.00 Vesna has $1,000 to invest, and she will need to have her money available in the next six months. Which product will yield her the highest interest in her time frame with no monthly fee? (5 points) One-year CD Checking Platinum savings Savings QUESTION 12 Which type of credit involves a set limit based on what a consumer pays up front? (5 points) Loans Installment credit Secured credit cards Unsecured credit cards QUESTION 13 Milo has received several credit card offers. Which of the following features is the riskiest? (5 points) High credit limit Fixed interest Low credit limit Variable interest QUESTION 14 02_08_g14.jpg Amun has four credit cards, each with a different interest rate. He charges $1,000 to each card in January and does not pay down any of the cards for four months. Based on the data in the chart, which two cards accrue the most amount of interest over time? (5 points) Credit 1 and Credit 3 Credit 1 and Credit 4 Credit 2 and Credit 3 Credit 2 and Credit 4 QUESTION 15 Samuel needs to decrease his expenses. To which category should he make cuts first? (5 points) Entertainment Housing Transportation Utilities QUESTION 16 Your friend's job pays $5.00 per hour and he works 20 hours per week. His tax rate is 20 percent. Assuming he works 50 weeks of the year, his yearly gross income is (5 points) $1,000 $4,000 $5,000 $10,000 QUESTION 17 02_08_g17_q3.jpg Gillian graphed her expenses in this pie chart to evaluate how she was spending her income. She would like to purchase health insurance, and calculates that it will cost 10 percent of her income for a year to save for the premium. How could she best shift her expenses to save 10 percent? (5 points) Buy a fuel-efficient car Cut household electricity usage Eat out less often Reduce payments on her debt QUESTION 18 Jonah has a high-paying job and would like to start saving for retirement. He has evaluated his budget in order to add savings to his expenses. He has a moderate amount of debt, and he spends a great deal on housing. His utilities, transportation, and health, expenses are fixed, and he spends little on recreation or eating out. Which action is he most likely to take? (5 points) Consider less costly housing options Pay off his debt Reduce his recreation expenses Search for a job with a higher salary QUESTION 19 Location Starting Salary Cost of Living (per person) Moving Costs Baltimore, MD $51,000 $22,000 $1,200 Cincinnati, OH $42,000 $19,000 none Miami, FL $42,000 $22,000 $1,500 New York, NY $49,000 $26,000 $1,300 Constance will graduate within a year with her teaching certification. She has evaluated teaching jobs in four states. A teaching job in which city would result in the most disposable income in the first year? (5 points) Baltimore, MD Cincinnati, OH Miami, FL New York, NY

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