Question

Multiple Choice

1. If inflation rises and the real interest rate does not change, the nominal interest rate has:

a. risen.

b. fallen.

c. stayed the same.
d. it is not possible to tell.

2. The demand for inventions is likely to be increased by:

a. stronger property rights.
b. a national emergency.
c. greater competition.

d. all of the above.

e. none of the above.

3. Some of the things William Nordhaus discusses in ““Do Real-Output and Real-Wage Measures Capture Reality?”

are:

a. “the silver bullet of price indexes,” the costs of blindness, the big bang, and Socrates.

b. “the fountain of youth of technological progress,” spectrography, slavery, and Albert Einstein.

c. “the Achilles heel of real output and wage measures,” light flux, Homo erectus, and Adam Smith.

d. “the invisible hand of necessity as the mother of invention,” telescopes, the Mayan calendar, and Helen Keller.

4. A permanent decrease in government purchases will cause the normal real interest rate to:

a. rise.

b. fall.
c. stay the same.
d. stay the same if the economy is in a recession, but fall otherwise.

Answer 1

1.c.stayed the same

Nominal interest rate is not adjusted for inflation whereas real interest rate is adjusted by deducting the rate of inflation from the nominal interest rate.

2.c.greater competition

In case of greater competition,innovation and inventions is in demand to keep pace with the rivals.

3.c.the Achilles heel of real output and wage measures.

4.c.stay the same

Permanent changes in the government purchases don't affect the equilibrium rate in a steady state,since consumption becomes constant.