Question : 41) If Mr. Garrison paid an interest rate of 4% : 1381102

41) If Mr. Garrison is paid an interest rate of 4% on his savings, but the inflation rate is 7%, the real interest rate Mr. Garrison earns is

A) 28%.

B) 4%.

C) -3%.

D) -7%.

42) You want to make a 10% real return on a loan that you are planning to make, and the expected inflation rate during the period of the loan is 4%. You should charge a nominal interest rate of

A) -6%.

B) 6%.

C) 10%.

D) 14%.

43) Lola wants to make an 6% real return on a loan that she is planning to make, and the expected inflation rate during the period of the loan is 5%. She should charge an interest rate of

A) 1%.

B) 6%.

C) 11%.

D) 16%.

44) If the inflation rate is smaller than the nominal interest rate, the real interest rate is

A) positive.

B) negative.

C) zero.

D) either positive or zero.

45) Eliza wants to borrow $100 from Sandy. Sandy wants to make 4% real return on his money, so they both agree on a 4% interest rate paid next year. Eliza and Sandy did not anticipate any inflation, yet the actual inflation turned out to be -5% next year. In this case,

A) Eliza will pay an 9% real interest rate.

B) Sandy is better off.

C) Eliza will pay a 4% nominal interest rate.

D) all of the above

46) Dean borrows $400 from Tim.  Tim wants to make a 10% real return on his money, so they both agree on a 10% interest rate paid next year. Dean and Tim did not anticipate any inflation, yet the actual inflation turned out to be 4% next year. In this case,

A) Tim is better off.

B) Dean will pay $56 a year from now on.

C) Dean is better off.

D) Tim will receive more than 10% of real rate of return a year from now.

47) Which of the following is a cost of anticipated inflation?

A) Debtors are made worse off.

B) If people are not fully informed about the price level changes, resources will be misallocated.

C) The degree of risk associated with investments in the economy increases.

D) Creditors are made worse off.

48) Stopping inflation

A) can only benefit the economy, because the price level will be reduced.

B) may be costly, if the inflation is stopped by inducing a recession.

C) may be costly, but the benefits of stopping inflation will always outweigh the costs of such actions.

D) will have no benefits or costs associated with it.

49) Which of the following statements is FALSE?

A) Whether you gain or lose during a period of inflation depends on whether your income rises faster or slower than the prices of the things you buy.

B) Inflation that is higher than expected benefits debtors, and inflation that is lower than expected benefits creditors.

C) There are no costs or losses associated with anticipated inflation.

D) When unanticipated inflation occurs regularly, the degree of risk associated with investments in the economy increases.

50) When unanticipated inflation occurs regularly, the degree of risk associated with investments in the economy

A) increases.

B) decreases.

C) remains stable.

D) falls to zero.