Question

suppose that the interest rate on your passbook savings account is 4 percent per year and this year's inflation rate is 5 percent. Are you better off or worse?

Assume that the consumer price index equaled 50 in 1960 and 150 in 1990. Suppose that you had 60 in 1990 to purchase goods and services. How much money would you have needed in 1960 to buy the same amount of goods and services

If the government today decides that aggregate demand is deffiicient and is causing a recession, what is it likely to do? What if the government decides that aggregate demand is excessive and is causing inflation?

Answer #1

1. The real interest rate = Nominal interest rate - Inflation rate

= 4% - 5% = -1%

Since real interest rate is negative,therefore, you are worse off.

2. Money needed in 1960 to buy the same amount of goods and services = 60 * (50 / 150) = $20

3. To overcome recession, government should increase government spending so that income will be generated in the hands of people, so that, aggregate demand can be increased.

To check inflation, government should decrease government spending so that aggregate demand can be decreased.

Suppose the one year nominal interest rate is 3 percent and that
the expected inflation is equal to 4 percent. The price index over
this one year period went from 218 to 223. Compare the ex-ante real
rate of interest to the ex-post real rate of interest. Which real
rate of interest would you more likely be willing to spend today
and which real rate of interest would you more likely be willing to
save and why?

Suppose that nominal wage growth is 5 percent per year and the
inflation rate( the growth of aggregate prices) is 2% per year, the
growth of the real wage rate is
A 10 percent per year
B -3 percent per year
C 3 percent per year
D 7 percent per year

Suppose your bank reduces the interest rate on your savings
account. You transfer $200 from your savings account to your
checking account. What is the overall effect on M1 and M2?

1) When discussing wages, incomes and interest rates you always
want to focus on the ........ when making comparisons.
a. Nominal Value
b. Real value
c. both are needed
d. none of the above
2) When there is a decrease in the interest rate you can expect
to see
a. increase in investment
b. decrease in spending
c. increase in savings
d. both increase in investment and increase in savings
3. A decrease in the supply of oil ( an...

1-
The long-run aggregate supply curve assumes that
the unemployment rate is more than 9 percent.
only laborers are fully employed.
all factors of production are fully employed.
there is no government purchasing of goods and services.
2-The natural rate of unemployment will help determine
the level of economic growth in the economy.
the position of the long-run aggregate supply curve.
low levels of inflation.
the open economy effect.
3-The vertical axis for an aggregate demand curve measures
real income....

n January 2013, you can put your savings in a Bank of America
account and be paid 2.5 percent per year. During 2013, suppose the
inflation rate is 3.6 percent. In 2013 you earned a real interest
rate of
a.) 0.59%
b.)6.8%
c.)1.1%
d.) -1.1%
The demand for money curve is the relationship between ________
and ________, other things remaining the same
a.) the quantity of nominal money demanded; the real interest
rate
b.) the quantity of real money demanded;...

18. In the long run, if the growth rate is 4%, we would double
in approximately (using the rule for doubling)
a. 29 years
b. 40 years
c. 32 years
d. 18 years
20. if the CPI this year was 180 and last year was 150, the rate
of inflation is
a. 30%
b. 10%
c. 20%
d. 16.67%
23. if prices rise by 5% and your wage rises by 8%, this
means
a. your real wage is 13%
b....

Suppose that the expected real interest rate in the United
States is 9 percent per year while that in Europe is 3 percent per
year. What do you expect to happen to the real dollar/euro exchange
rate over the next year?

answer the following questions
Q21.When the economy experiences an
expansion, it is most likely the case
that-------------------------------
GDP is increasing, unemployment is increasing, and inflation is
decreasing.
GDP is increasing, unemployment is decreasing, and inflation is
increasing.
GDP is decreasing, unemployment is decreasing, and inflation is
increasing.
GDP is decreasing, unemployment is decreasing, and inflation is
decreasing.
Q22. GDP is an important economic measurement because
it
provides valuable data on unemployment rates
measures the combined total of all intermediate and...

Suppose the MPC is 0.8. Assume there are no crowding out or
investment accelerator effects. If the government decreases
expenditures by $100 billion, then by how much does aggregate
demand change?
A.
$100 billion
B.
-$100 billion
C.
$500 billion
D.
-$500 billion
If the MPC = 0.2, then the government purchases multiplier
is
A.
0.2.
B.
0.8.
C.
5
D.
1.25.
According to the AS-AD model, an increase in the money supply
causes
A.
prices to decrease in the...

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