Question

1. You open an investment account that earns a nominal interest rate of 4.2% a year. The current consumer price index is 108. In one year, the consumer price index is expected to go to 112. What is your expected real rate of return?

A) -0.5%

B) 3.7%

C) 4.2%

D) 0.5%

2. In December 2019, U.S. debt held by the public was approximately $17 trillion, intragovernmental debt was approximately $6 trillion, and the total public debt was approximately $23 trillion. What was the net government debt?

A) $23 trillion

B) $11 trillion

C) $6 trillion

D) $17 trillion

3. Frictional unemployment is unemployment:

A) that occurs because wages don't fall to bring labor demand and labor supply into equilibrium.

B) due to the time it takes for employers to search for workers and for workers to search for jobs.

C) that occurs because of seasonal changes.

D) due to a temporary downturn in the economy.

Answer 1

1. Answer is 0.5%

Nominal interest rate = real rate + inflation rate

When inflation expectations rises from 108 to 112, the inflation rate = 112 / 108 – 1 * 100 = 3.7%

Now, Nominal interest rate = real rate + inflation rate

4.2% = Real rate + 3.7%

Real rate = 4.2% - 3.7%

= 0.5%

2. Answer is “17 Dollar Trillion”

It is the net debt that government owns.

3. Frictional unemployment is unemployment “due to the time it takes for employers to search for workers and for workers to search for jobs.”

. Frictional Unemployment - when people leave their old jobs but haven't yet found new ones or currently looking for jobs, are currently counted as unemployed.