Question

Answer all of these questions with the right question number next to the correct choice. ANSWER ALL OR NONE

6)You ask your boss for a real productivity wage raise of 1.5% knowing inflation is projected to be 2%. You receive a 3% raise. If inflation holds true to the 1.5% forecast,

A)Both a and b are correct.

B)You received a real raise of 1%.

C)You received a nominal raise of 4.5%.

D)You received a real raise of 1.5%.

12-Overnight USD loans mostly among large US banks are said to form the:

A)Federal funds market

B)Capital market

C)Money market

D)Negotiable certificate of deposits market

17-Which of the following are considered to determine the real interest rate?

A)Productive opportunities in the economy

B)Inflation

C)Consumer time preferences for consumption

D)Both consumer time preferences and productive economic opportunities are determinants of the real interest rate

18-If a country’s real interest rate is 3% and its inflation rate is 1%, what is the nominal risk-free rate for a T-Bill?

A)4%

B)1%

C)2%

D)3%

Answer 1

1. Option D is correct

real raise=raise percenatge-true inflation rate=3%-1.5%=1.5%

2. Option A is correct

In the United States, the federal funds rate is the interest rate at which depository institutions (banks and credit unions) lend reserve balances to other depository institutions overnight on an uncollateralized basis.

3. Option B is correct

We have to adjust the inflation to the nominal rate to arrive at the real interest rate.

4. Nominal risk free rate=real interest rate+inflation rate=3%+1%=4%

Option A is correct