Question : 12.5   Integrative Questions 1) The dominant factor why the nominal interest : 1240497

 

12.5   Integrative Questions

 

1) The dominant factor why the nominal interest rate differs among nations is that ________ differs among nations.

A) potential GDP

B) the unemployment rate

C) inflation rate

D) the price level

E) the quantity of money

 

2) If the inflation rate is zero, the nominal interest rate is

A) greater than the real interest rate.

B) less than the real interest rate.

C) equal to the real interest rate.

D) equal to the inflation rate.

E) positive and the real interest rate is negative.

 

3) The long-run effect of a decrease in the growth rate of the quantity of money is a

A) lower real interest rate.

B) higher real interest rate.

C) lower nominal interest rate.

D) higher nominal interest rate.

E) higher inflation rate.

4) The long-run effect of an increase in the growth rate of the quantity of money is a

A) lower real interest rate.

B) higher real interest rate.

C) lower nominal interest rate.

D) higher nominal interest rate.

E) lower inflation rate.

 

5) If the Fed wants to lower the nominal interest rate in the short run, the Fed ________ the growth rate of the quantity of money.

A) raises

B) lowers

C) does not change

D) first lowers and then raises

E) None of the above answers is correct because the premise of the question is wrong since the Fed cannot affect the nominal interest rate, only the real interest rate.

 

6) If the Fed wants to lower the nominal interest rate in the long run, the Fed ________ the growth rate of the quantity of money.

A) raises

B) lowers

C) does not change

D) first lowers and then raises

E) None of the above answers is correct because the premise of the question is wrong since the Fed cannot affect the nominal interest rate, only the real interest rate.

7) In the long run, the real interest rate is 3 percent, real GDP grows at 4 percent, velocity is constant, and the quantity of money grows at 8 percent. The nominal interest rate is

A) 6 percent.

B) 7 percent.

C) 8 percent.

D) 10 percent.

E) 12 percent.

 

8) In the long run, the real interest rate is 3 percent, real GDP grows at 4 percent, velocity is constant, and the quantity of money grows at 6 percent. The nominal interest rate is

A) 3 percent.

B) 4 percent.

C) 5 percent.

D) 10 percent.

E) 6 percent.

 

9) In the short run, an increase in the growth rate of the quantity of money ________ the nominal interest rate and in the long run it ________ the nominal interest rate.

A) raises; raises

B) raises; lowers

C) lowers; raises

D) lowers; lowers

E) does not change; raises

10) In the long run, an increase in the growth rate of the quantity of money ________ the inflation rate and ________ the nominal interest rate.

A) raises; raises

B) raises; lowers

C) lowers; raises

D) lowers; lowers

E) raises; does not change

 

 

11) In the long run, when an economy experiences inflation, the price level ________ and the nominal interest rate ________.

A) rises; remains constant

B) remains constant; rises

C) rises; rises

D) falls; rises

E) rises; falls

 

12) During the 1990s, Canada had an average inflation rate of 1.5 percent while Columbia had an average inflation rate of 21.5 percent. You would expect that nominal interest rates in Canada are

A) less than nominal interest rates in Columbia.

B) equal to nominal interest rates in Columbia.

C) greater than nominal interest rates in Columbia.

D) unpredictably different from nominal interest rates in Columbia.

E) not comparable to nominal interest rates in Columbia.

13) Inflation decreases the growth of capital because

i.when the after-tax real interest rate falls, savings decreases.

ii.velocity increases when inflation increases.

iii.the higher the inflation rate, the higher is the true income tax rate on income from capital.

A) i only

B) ii only

C) iii only

D) i and iii

E) i, ii, and iii

 

14) In a period of hyperinflation, the velocity of circulation increases because

A) households and firms spend money as soon as they receive payment.

B) the nominal interest rate decreases.

C) potential GDP increases.

D) the real interest rate rises.

E) money is valuable everyone wants it.

 

15) During a period of hyperinflation, as households and firms avoid holding money,

A) potential GDP increases.

B) long term savings accounts become more popular.

C) barter becomes more common.

D) capital investment increases.

E) the costs of inflation decrease.