Question 1: Suppose in March the nominal interest rate (on new lending) is 10% while expected inflation is 4%. However, by October the expected inflation rate has risen to 7%. Other things the same in borrowing and lending markets, in October (for new lending),
a.
the nominal interest rate is 10% and the real interest rate is 3%
b.
the nominal interest rate is 10% and the real interest rate is 6%
c.
the nominal interest rate is 10% and the real interest rate is 9%
d.
the nominal interest rate is 13% and the real interest rate is 3%
e.
the nominal interest rate is 13% and the real interest rate is 6%
f.
the nominal interest rate is 13% and the real interest rate is 9%
Question 2: In Year 1, a fixed 9% nominal interest rate loan is signed. At the time, annual inflation was expected to be 5%. Looking back from Year 3, inflation actually turned out to be 2%. In retrospect, the real interest rate actually turned out to be,
a.
3%
b.
4%
c.
7%
d.
9%
Question 3: In Year 1, a fixed 12% nominal interest rate loan is signed. At the time, annual inflation was expected to be 4%. Looking back from Year 4, inflation actually turned out to be 8%. Regarding this loan, the unexpected rate of inflation,
a.
helped the borrower and helped the lender
b.
helped the borrower and hurt the lender
c.
hurt the borrower and helped the lender
d.
hurt the borrower and hurt the lender
Question 4: Suppose the nominal wage is fixed for the year. At the beginning of the year, annual inflation was expected to be 6%. Looking back at the end of the year, inflation actually turned out to be 2%. The unexpected rate of inflation,
a.
helped employers and helped employees
b.
helped employers and hurt employees
c.
hurt employers and helped employees
d.
hurt employers and hurt employees
Question 5: Suppose a typical household in Country Z buys (just) 20 pumpkins per year and 10 pounds of apples per year. In Year 1, the price of pumpkins is $4. In Year 2, the price of pumpkins is $5. In Year 1, the price of apples is $1.50 a pound . In Year 2, the price of apples is $1 a pound. The CPI inflation rate for Country Z for the Year 2 is,
a.
-4.2%
b.
8.3%
c.
9.1%
d.
13.6%
e.
15.8%
Question 6: In 2014, Savannah's nominal income was $56,000. And in 2017, Savannah's nominal income was $57,500. In 2014 the price index was 163.8 and in 2017 the price index was 171.2. The percent change in Savannah's real income from 2014 to 2017 was,
a.
-2.6%
b.
-1.8%
c.
1.8%
d.
2.7%
e.
4.5%
Question 7: Suppose the price index for a country was 183.6 in 2012, was 188.5 in 2013, and was 191.0 in 2014. The inflation rate for 2013 for the country was,
a.
-1.3%
b.
1.3%
c.
2.0%
d.
2.7%
Question 8: Suppose the price of computer tablets in 2016 was $230, while the price of the higher quality tablets produced in 2017 was $290. The inflation rate for computer tablets for 2017 was (to one decimal point) 26.1%
True
False
Question 1: Suppose in March the nominal interest rate (on new lending) is 10% while expected inflation is 4%. However, by October the expected inflation rate has risen to 7%. Other things the same in borrowing and lending markets, in October (for new lending),
| a. | the nominal interest rate is 10% and the real interest rate is 3% | |
| b. | the nominal interest rate is 10% and the real interest rate is 6% | |
| c. | the nominal interest rate is 10% and the real interest rate is 9% | |
| d. | the nominal interest rate is 13% and the real interest rate is 3% | |
| e. | the nominal interest rate is 13% and the real interest rate is 6% | |
| f. | the nominal interest rate is 13% and the real interest rate is 9% |
Question 2: In Year 1, a fixed 9% nominal interest rate loan is signed. At the time, annual inflation was expected to be 5%. Looking back from Year 3, inflation actually turned out to be 2%. In retrospect, the real interest rate actually turned out to be,
| a. | 3% | |
| b. | 4% | |
| c. | 7% | |
| d. | 9% |
Question 3: In Year 1, a fixed 12% nominal interest rate loan is signed. At the time, annual inflation was expected to be 4%. Looking back from Year 4, inflation actually turned out to be 8%. Regarding this loan, the unexpected rate of inflation,
| a. | helped the borrower and helped the lender | |
| b. | helped the borrower and hurt the lender | |
| c. | hurt the borrower and helped the lender | |
| d. | hurt the borrower and hurt the lender |
Question 4: Suppose the nominal wage is fixed for the year. At the beginning of the year, annual inflation was expected to be 6%. Looking back at the end of the year, inflation actually turned out to be 2%. The unexpected rate of inflation,
| a. | helped employers and helped employees | |
| b. | helped employers and hurt employees | |
| c. | hurt employers and helped employees | |
| d. | hurt employers and hurt employees |
Question 5: Suppose a typical household in Country Z buys (just) 20 pumpkins per year and 10 pounds of apples per year. In Year 1, the price of pumpkins is $4. In Year 2, the price of pumpkins is $5. In Year 1, the price of apples is $1.50 a pound . In Year 2, the price of apples is $1 a pound. The CPI inflation rate for Country Z for the Year 2 is,
| a. | -4.2% | |
| b. | 8.3% | |
| c. | 9.1% | |
| d. | 13.6% | |
| e. | 15.8% |
Question 6: In 2014, Savannah's nominal income was $56,000. And in 2017, Savannah's nominal income was $57,500. In 2014 the price index was 163.8 and in 2017 the price index was 171.2. The percent change in Savannah's real income from 2014 to 2017 was,
| a. | -2.6% | |
| b. | -1.8% | |
| c. | 1.8% | |
| d. | 2.7% | |
| e. | 4.5% |
Question 7: Suppose the price index for a country was 183.6 in 2012, was 188.5 in 2013, and was 191.0 in 2014. The inflation rate for 2013 for the country was,
| a. | -1.3% | |
| b. | 1.3% | |
| c. | 2.0% | |
| d. | 2.7% |
Question 8: Suppose the price of computer tablets in 2016 was $230, while the price of the higher quality tablets produced in 2017 was $290. The inflation rate for computer tablets for 2017 was (to one decimal point) 26.1%
True
False
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