Question 1

The real interest rate equals the nominal interest rate ________ the inflation rate.

Accepted Answer

The real interest rate is calculated by subtracting the inflation rate from the nominal interest rate. Therefore, the correct choice is D, "minus".

Question 2

Suppose you borrow $1,000 at an interest rate of 12 percent.If the expected real interest rate is 5 percent,then the rate of inflation over the upcoming year that would be most beneficial to you would be a rate of inflation

Accepted Answer

The most beneficial rate of inflation for a borrower is one that is higher than the difference between the nominal interest rate (12 percent) and the expected real interest rate (5 percent), which is 7 percent. A higher inflation rate reduces the real value of the money repaid, benefiting the borrower.

Question 3

You lend $5,000 to a friend for one year at a nominal interest rate of 10%.Inflation during that year is 5%.As a result,you will receive ________ at the end of the year,but that money has a purchasing power of ________.

Accepted Answer

The answer of You lend $5,000 to a friend for...

Question 4

The CPI in 2010 was 218,while the CPI in 1980 was 82.If you had $5,000 in 1980,its equivalent purchasing power in 2010 would be $10,850.

Accepted Answer

To find the equivalent purchasing power, you use the formula: (CPI in 2010 / CPI in 1980) * 1980 dollar value. So, (218 / 82) * $5,000 = 2.65854 * $5,000 = $13,292.68, not $10,850.

Question 5

Table 9-19
 
-Refer to Table 9-19.Looking at the table above,what is the rate of growth of the average price level from 2017 to 2018?

Accepted Answer

To calculate the rate of growth of the average price level from 2017 to 2018, we need to use the formula ((New Value - Old Value) / Old Value) x 100.

Using the table, the average price level in 2017 is $21.00 and in 2018 it is $22.05.

((22.05 - 21.00) / 21.00) x 100 = 4.76%

Therefore, the rate of growth of the average price level from 2017 to 2018 is 4.76%. Option D is the correct choice.

Question 6

To obtain real average hourly earnings,nominal average hourly earnings are multiplied by the CPI.

Accepted Answer

To obtain real average hourly earnings, nominal average hourly earnings are divided by the Consumer Price Index (CPI) and then usually multiplied by 100 to convert to an index. This adjusts for inflation and reflects the purchasing power of earnings.

Question 7

Table 9-19
 
-Refer to Table 9-19.Looking at the table above,what is the rate of growth of the average price level from 2016 to 2017?

Accepted Answer

The answer of Table 9-19
 
-Refer to Table 9-19.Looking at...

Question 8

If the nominal rate of interest is 6.5% and the inflation rate is 3.0%,what is the real rate of interest?

Accepted Answer

Real rate of interest = Nominal rate of interest - Inflation rate
= 6.5% - 3.0%
= 3.5%

Question 9

The nominal interest rate equals the real interest rate ________ the inflation rate.

Accepted Answer

The nominal interest rate is equal to the real interest rate plus the inflation rate. This is represented by the formula: nominal interest rate = real interest rate + inflation rate.

Question 10

Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest.If the inflation rate was 7%,what was the real interest rate you paid?

Accepted Answer

The real interest rate is the nominal interest rate minus the inflation rate.

Nominal interest rate = $100/$1000 = 0.1 or 10%
Inflation rate = 7%

Real interest rate = nominal interest rate - inflation rate = 10% - 7% = 3%

Question 11

Imagine that you borrow $5,000 for one year and at the end of the year you repay the $5,000 plus $600 of interest.If the inflation rate was 4%,what was the real interest rate you paid?

Accepted Answer

The answer of Imagine that you borrow $5,000 for one...

Question 12

Currently,the base year for the CPI is the average of prices in the years 1982 to 1984.

Accepted Answer

This is true. The base year for the CPI (Consumer Price Index) in the United States is currently the average of prices in the years 1982 to 1984. This base year is used to compare current prices to past prices in order to measure inflation and changes in the cost of living. The base year is updated periodically to reflect changes in consumption patterns and market conditions.

Question 13

Table 9-23
 
-Refer to Table 9-23.The table above lists the actual minimum wage and CPI in 1974 and in 2017.Using the above table,calculate the real minimum wage for 1974 and 2017.Calculate the rate of growth of the real minimum wage from 1974 to 2017.Are workers better off in terms of the purchasing power of a dollar in 1974 or 2017? Explain why.

Accepted Answer

The answer of Table 9-23
 
-Refer to Table 9-23.The table...

Question 14

Nominal income is equal to real income if the CPI is less than 100.

Accepted Answer

Nominal income is not equal to real income if the CPI is less than 100. Real income takes into account inflation and adjusts for changes in purchasing power, whereas nominal income is just the raw dollar amount earned without considering the effects of inflation. If the CPI is less than 100 (which is rare), it means that the price level is lower than the base year used to calculate the CPI, but real income can still be different from nominal income due to changes in purchasing power.

Question 15

Table 9-19
 
-Refer to Table 9-19.Looking at the table above,what is the approximate rate of growth of real average hourly earnings from 2016 to 2017?

Accepted Answer

The answer of Table 9-19
 
-Refer to Table 9-19.Looking at...

Question 16

Table 9-22
 
-Refer to Table 9-22.Using the above table,calculate real average hourly earnings for 2016,2017,and 2018.Calculate the rate of growth of real average hourly earnings from 2017 to 2018.

Accepted Answer

The answer of Table 9-22
 
-Refer to Table 9-22.Using the...

Question 17

Table 9-21
  Source: Energy Information Administration
-Refer to Table 9-21.The table above reports the consumer price index and the average U.S.retail price for unleaded regular gasoline for four different periods since 1976.Note that the gasoline prices are in cents per gallon.
Calculate the real average retail price of unleaded regular gasoline in 1982-1984 dollars.In which period were gasoline prices the highest in real terms? Also,calculate the real average retail price of unleaded regular gasoline in 2011 dollars.

Accepted Answer

The answer of Table 9-21
  Source: Energy Information Administration
-Refer...

Question 18

The stated interest rate on a loan is the

Accepted Answer

The stated interest rate on a loan is typically the nominal interest rate, which is the rate quoted by the lender without taking into account inflation or other factors that can affect the true value of the loan. The real interest rate, by contrast, adjusts for inflation and reflects the true cost of borrowing money. The actual and expected inflation rates are not directly related to the stated interest rate on a loan, although they can have an impact on the borrower's ability to repay the loan over time.

Question 19

Table 9-20
  Salaries in major league baseball have soared over the last 30 to 40 years.Some of the salary increase is due to inflation.The table above reports the consumer price index and the median nominal salary of the New York Yankees for 1989 and 2015.
Source: USA Today Salaries Database,http://www.usatoday.com/sports/mlb/yankees/salaries/2015/team/all/
-Refer to Table 9-20.Calculate the real median salary of the New York Yankees in both 1982-1984 dollars and 2015 dollars.Calculate the percentage increase in the median salary of the Yankees from 1989 to 2015 in both nominal terms and in real terms.

Accepted Answer

The answer of Table 9-20
  Salaries in major league...

Question 20

Suppose you lend $1,000 at an interest rate of 10 percent over the next year.If the expected real interest rate at the beginning of the loan contract is 4 percent,then what rate of inflation over the upcoming year would be most beneficial to you as the lender? An inflation rate

Accepted Answer

An inflation rate of 0 percent would be most beneficial to the lender because it would mean that the real interest rate remains at the nominal rate of 10 percent, maximizing the lender's real return.

Quiz 9: Unemployment and Inflation