Question : 46) Julio borrows $250 from Ricky. Ricky wants to make : 1381392

46) Julio borrows $250 from Ricky. Ricky wants to make a 5% real return on his money, so they both agree on a 5% interest rate paid next year. Both don’t anticipate the 5% inflation next year. In this case

A) Ricky is better off.

B) Julio will pay $15 a year from now on.

C) Julio is better off.

D) Ricky will receive more than 5% of real rate of return a year from now.

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

A) Debtors are made worse off.

B) Both debtors and creditors are made worse off.

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

D) Creditors are made worse off.

48) Stopping inflation by inducing a recession

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

B) generates costs to society due to the recession.

C) will always outweigh the costs of the recession.

D) both A and C

49) Which of the following statements is true?

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 creditors, and inflation that is lower than expected benefits debtors.

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 decreases.

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

A) increases.

B) decreases.

C) remains stable.

D) falls to zero.

51) A recession ________ output in the future and inflation ________ output in the future.

A) will reduce; will not affect

B) may reduce; may reduce

C) may reduce; will increase

D) will reduce; will reduce

52) Related to the Economics in Practice on p. 451: The Consumer Price Index in the United States was 207.3 in 2007, 215.3 in 2008 and 214.5 in 2009. If a retiree’s pension is tied to the CPI, his monthly pension check would have increased from ________, and decreased from ________.

A) 2007 to 2008; 2008 to 2009

B) 2008 to 2009; 2007 to 2008

C) 2007 to 2008; 2007 to 2009

D) 2007 to 2009; 2007 to 2008

53) Related to the Economics in Practice on p. 451: The Consumer Price Index in the United States was 215.3 in 2008 and 214.5 in 2009. If a retiree received a monthly pension check of $4,500.00 in 2008 and her pension is tied to the CPI, how much would her monthly pension check be in 2009?

A) $4,464.00

B) $4,483.28

C) $4,500.00

D) $4,714.50

54) Related to the Economics in Practice on p. 451: If a retiree’s pension is tied to the CPI, her monthly pension check would tend to grow ________ if the pension is tied to the ________ CPI.

A) slower; fixed-weight

B) faster; chain-linked

C) faster; fixed-weight

D) The check would grow at the same rate regardless of the type of CPI to which it is tied.

55) The CPI somewhat understates changes in the cost of living because it does not allow for substitutions that consumers might make in response to price changes.

56) A 100% increase in the price of salt changes the CPI less than a 10% increase in rent.

57) An inflation rate that is lower than expected benefits debtors.

58) There are costs associated with inflation, even if the inflation rate is perfectly anticipated.

59) The actual real rate of interest is the nominal rate plus the actual inflation rate.