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Quiz 8

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Question 1 (1.0 points)
The Fisher effect summarizes the effects of:
  1. inflation on the nominal interest rate in the short run.
  2. inflation on the natural real interest rate in the short run.
  3. inflation on the real interest rate in the short run.
  4. inflation on the nominal interest rate in the medium run.
Question 2 (1.0 points)
A reduction in the nominal interest rate will always cause which of the following?
  1. the real interest rate to increase
  2. the demand for money to decrease
  3. the expected inflation rate to increase
  4. all of the above
  5. none of the above
Question 3 (1.0 points)
If the nominal interest rate is zero, then the present discounted value of a sequence of future payments is:
  1. undefined.
  2. zero.
  3. equal to the last of the payments.
  4. equal to the square of the sum of all payments.
  5. equal to the sum of all payments.
Question 4 (1.0 points)
If the nominal interest rate is 20% per year, how much money can an individual borrow today if she wants to repay $200 in one year?
  1. $180.00
  2. $240.00
  3. $166.67
  4. $150.00
  5. $160.00
Question 5 (1.0 points)
If the expected inflation rate is negative, then the expected real interest rate must be:
  1. equal to the nominal interest rate.
  2. greater than zero.
  3. negative.
  4. less than the nominal interest rate.
  5. any of the above, depending on the absolute value of the negative expected inflation rate.
Question 6 (1.0 points)
Which of the following is true of the LM curve when the nominal interest rate is on the vertical axis?
  1. The LM curve becomes steeper.
  2. An increase in the expected inflation rate will make the LM curve shift down.
  3. A change in expected inflation will have no effect on the position of the LM curve.
  4. An increase in the expected inflation rate will make the LM curve shift up.
  5. none of the above
Question 7 (1.0 points)
If the nominal interest rate in year t is 9%, and the expected inflation rate for year t is 3%, then the expected real interest rate in year t is approximately:
  1. 2%.
  2. 3%.
  3. 6%.
  4. 12%.
  5. 9%.
Question 8 (1.0 points)
With a nominal interest rate of 10% per year, the present discounted value of $500 to be received in two years is:
  1. $413.22.
  2. $350.00.
  3. $480.00.
  4. $454.45.
  5. $490.00.
Question 9 (1.0 points)
In the IS-LM model, a decrease in expected inflation will cause:
  1. a decrease in output.
  2. an increase in the real interest rate.
  3. a decrease in the nominal interest rate.
  4. all of the above
  5. none of the above
Question 10 (1.0 points)
In the medium run, lower money growth causes:
  1. lower real interest rates and lower nominal interest rates.
  2. lower real interest rates and higher nominal interest rates.
  3. higher real interest rates and lower nominal interest rates.
  4. higher real interest rates and higher nominal interest rates.
  5. none of the above
Question 11 (1.0 points)
The real interest rate, r, measures which of the following?
  1. how many dollars we must give up today in order to have more dollars next year
  2. how many dollars we must give up next year in order to have more dollars today
  3. how many dollars we must give up next year in order to consume more goods today
  4. how many dollars we must give up today in order to consume more goods today
  5. how many goods we must give up next year in order to consume more goods today
Question 12 (1.0 points)
Suppose there is a reduction in government spending. Such a fiscal policy action will cause:
  1. the natural real interest rate to rise.
  2. the natural real interest rate to fall.
  3. ambiguous effects on the natural real interest rate.
  4. no effect on the natural real interest rate.
Question 13 (1.0 points)
A "consol" promises to pay $500 each year, forever, starting next year. If the nominal interest rate is 10%, the present discounted value of this consol is:
  1. $5,000.00.
  2. $454.54.
  3. $500.00.
  4. $490.00.
  5. $510.00.
Question 14 (1.0 points)
When the IS curve is drawn with the nominal interest rate on the vertical axis, an increase in the expected inflation rate will cause:
  1. the IS curve to become flatter.
  2. the IS curve to become steeper.
  3. the IS curve to shift rightward.
  4. the IS curve to shift leftward.
  5. no change in the IS curve.
Question 15 (1.0 points)
The nominal interest rate is:
  1. equal to the expected rate of inflation.
  2. the interest rate in terms of goods.
  3. always less than the real interest rate.
  4. equal to the real interest rate minus the rate of inflation.
  5. the kind of interest rate reported in the financial pages of newspapers.
Question 16 (1.0 points)
For a given nominal interest rate, a reduction in expected inflation will cause:
  1. an increase in the real interest rate.
  2. a reduction in the real interest rate.
  3. a reduction in investment.
  4. a reduction in money demand.
  5. both A and C
Question 17 (1.0 points)
If the nominal interest rate falls, and the expected inflation rate rises, then the real interest rate:
  1. will rise, but only if the drop in the nominal rate is greater than the increase in expected inflation.
  2. must fall.
  3. will fall, but only if the drop in the nominal rate is smaller than the increase in expected inflation.
  4. cannot be defined.
  5. must rise.
Question 18 (1.0 points)
For a given nominal interest rate, an increase in expected inflation will cause:
  1. a reduction in the real interest rate.
  2. an increase in the real interest rate.
  3. a reduction in money demand.
  4. a reduction in investment.
Question 19 (1.0 points)
Suppose the central bank pursues contractionary monetary policy. Such an action will cause:
  1. the natural real interest rate to rise.
  2. the natural real interest rate to fall.
  3. ambiguous effects on the natural real interest rate.
  4. no effect on the natural real interest rate.
Question 20 (1.0 points)
In choosing between money and bonds, portfolio holders need to know:
  1. either the real interest rate or the expected inflation rate.
  2. the real interest rate only.
  3. the expected inflation rate only.
  4. the nominal interest rate only.
  5. both the nominal and real interest rates.
Question 21 (1.0 points)
With a nominal interest rate of 5% per year, the present discounted value of $1000 to be received in 10 years is:
  1. $500.00.
  2. $952.06.
  3. $150.00.
  4. $750.00.
  5. none of the above
Question 22 (1.0 points)
When expected inflation is equal to the nominal interest rate, we know that:
  1. the real interest rate is negative.
  2. the real interest rate is higher than the nominal interest rate.
  3. the real interest rate is positive.
  4. none of the above
Question 23 (1.0 points)
In the medium run, which of the following expressions will represent the nominal interest rate?
  1. r n - g m
  2. r n
  3. g Y + g m
  4. r n - π e
  5. none of the above
Question 24 (1.0 points)
A reduction in consumer confidence will cause:
  1. the natural real interest rate to rise.
  2. the natural real interest rate to fall.
  3. ambiguous effects on the natural real interest rate.
  4. no effect on the natural real interest rate.
Question 25 (1.0 points)
Suppose the nominal interest rate is greater than the real interest rate. Given this information, we know that:
  1. either the nominal or real interest rate must be negative.
  2. deflation must be occurring.
  3. expected inflation must be negative.
  4. both the nominal and real interest rates must be negative.
  5. none of the above
Copyright 2008, by the Contributing Authors. Cite/attribute Resource . admin. (2009, January 27). Quiz 8. Retrieved January 07, 2011, from Free Online Course Materials — USU OpenCourseWare Web site: http://ocw.usu.edu/economics/macroeconomics-for-managers/quiz8.htm. This work is licensed under a Creative Commons License Creative Commons License