1- Suppose that a nation experiences 1% deflation and their nominal interest rat
ID: 1225932 • Letter: 1
Question
1- Suppose that a nation experiences 1% deflation and their nominal interest rate is 1.5%. What is that nation's real interest rate?
A. -0.5%
B. 2.5%
C. -2.5%
D. 0.5%
2-In a small closed economy, suppose that GDP equals $100 million, workers receive $70 million in wages, and landlords receive $10 million in rental payments. What is the value of total payments to capital holders (i.e. profits)?
A. $30 million
B. $0
C. $20 million
D- $ 10 Million
3- The 1970 Plymouth Hemi Cuda had an original sticker price of $3,164. The CPI in 1970 is 38.8 and the current CPI is 236.7. What is the sticker price of the Hemi Cuda adjusted for inflation?
A. $19,302
B. $519
C. $18,651
D. $29,417
4- If the price index is 80 in year 1, 100 in year 2, and 93 in year 3, then the economy experienced
A. 25 percent inflation between years 1 and 2, and 7 percent inflation between years 2 and 3
B. 20 percent inflation between years 1 and 2 ,and 7 percent inflation between years 2 and 3
C. 20 percent inflation between years 1 and 2, and 7 percent deflation between years 2 and 3
D. 25 percent inflation between years 1 and 2, and 7 percent deflation between years 2 and 3
A. -0.5%
B. 2.5%
C. -2.5%
D. 0.5%
2-In a small closed economy, suppose that GDP equals $100 million, workers receive $70 million in wages, and landlords receive $10 million in rental payments. What is the value of total payments to capital holders (i.e. profits)?
A. $30 million
B. $0
C. $20 million
D- $ 10 Million
3- The 1970 Plymouth Hemi Cuda had an original sticker price of $3,164. The CPI in 1970 is 38.8 and the current CPI is 236.7. What is the sticker price of the Hemi Cuda adjusted for inflation?
A. $19,302
B. $519
C. $18,651
D. $29,417
4- If the price index is 80 in year 1, 100 in year 2, and 93 in year 3, then the economy experienced
A. 25 percent inflation between years 1 and 2, and 7 percent inflation between years 2 and 3
B. 20 percent inflation between years 1 and 2 ,and 7 percent inflation between years 2 and 3
C. 20 percent inflation between years 1 and 2, and 7 percent deflation between years 2 and 3
D. 25 percent inflation between years 1 and 2, and 7 percent deflation between years 2 and 3
Explanation / Answer
1. Real interest rate = Nominal Interest rate - Inflation
= 1.5% - (-1%) = 2.5% (Deflation means negative inflation)
2. value of total payments to capital holders = 100 - 70 - 10 = $20 million.
3.
4. 25 percent inflation between years 1 and 2, and 7 percent deflation between years 2 and 3
Explanation: 80 + (25% of 80) = 100 and 100 - (7% of 100) = 93
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