Question

1. Over the past two centuries, the benchmark U.S. real interest rate has averaged about

a. 3%

b. 10%

c. 7%

d. 15%

e. 1%

f. 0%

2. A basket of goods in the base year cost $1200. This year, the basket cost $1600. What is this year's index number?

a. 33.3

b. 75

c. 133.3

d. 75 percent

e. 133 percent

3. In 1994, an index stood at 350. The index had a base year of 1982-84 =100. In 1998, the index stood at 580. What was the change in prices from 1994 to 1998?

a. 6.57 percent

b. 60.3 percent

c. 230 percent

d. 65.7 percent

e. 39.7 percent

4. Any expectation that the inflation rate will increase will usually cause bond prices to

a. Fall

b. Rise

c. Remain unchanged

d. Change, but the direction cannot be predicted accurately

5. To promote growth and development, what should a country do about protectionism?

a. Promote and encourage protectionism as a patriotic duty

b. Use protectionism to keep foreigners out of your markets

c. Encourage protectionism, but regulate the actual form of the protectionist policies

d. Keep protectionism to a minimum and try to reduce it over time

e. Only use protectionism to restrict imports, but encourage exports

Answer 1

1. Option a
The average real interest rate has averaged around 2 to 3 percent in last two centuries

2. Option c
Index number = (This year basket cost/Basket of goods in base year)*100
=(1600/1200)*100
= 133.33 percent

3. Option d
=((580-350)/350)*100 = 65.71 percent

4. Option a
As the purchasing power of the bond gets reduced

5. Option d
By reducing the protectionism the competition increases which increases the productivity and increases the exports of a nation