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- Given the federal budget deficit in recent years, some economists have argued mat by adjusting Social Security payments for inflation using me CPI, Social Security is warming recipients. What is their argument, and do you agree or disagree with it?Suppose that a borrower and a lender agree on thenominal interest rate to be paid on a loan. Theninflation turns out to be higher than they bothexpected.a. Is the real interest rate on this loan higher or lowerthan expected?b. Does the lender gain or lose from thisunexpectedly high inflation? Does the borrowergain or lose?c. Inflation during the 1970s was much higher thanmost people had expected when the decade began.How did this unexpectedly high inflation affecthomeowners who obtained fixed-rate mortgagesduring the 1960s? How did it affect the banks thatlent the moneyQuestron 3 Suppose the nominal interest rate is currently 24 per cent and expected inflation is 16 per cent. IF the expected inflastion rate doubles to 3.2 per cent, wtich of the foloving would be an implication of the Fisher effect? O The real interest ate talls by 1.6 per cent O The nominal interant rate doubies to 48 per cent O The nominal interast rate rises n 5.6 per cent O The nominal incerest rate des co 4.0 por cent
- Inflation the cost of holding money and the after-tax real interest rate. O A. increases; does not change O B. decreases; increases O C. decreases; decreases D. increases; increases O E. increases; decreasesWhich of the following will increase our current inflation rate t? None of the answers are correct O a. O b. A beneficial cost shock (positive supply shock) O c. A recessionary gap in period t-1 O d. tt-1Economics How are aggregate output and the real interest rate determined in compettive egulbum? OA The aggregate oulput can be found by multiplying current employment by current real wage at the intesection of the current labour supply and demand curves, given the raal inderest rate. and ssubtracting the level of investment in the economy OB. Cument aggregata output and the real interest rate are determined by the intersection of the output supoly and demand ouves OC. Cunent aggregate output can be found by finding current employment from the intersection of the current labour supply and domand ourves given the real interest rate and aocounting tor total tactor productivity OD. The real interest rate is determined by the slope of the output supply curve at a given level of aggregate output
- The phrase that inflation is a "monetary phenomenon" means... O a. Increases in the price level are always associated with increases in the money supply. O b. Only an increase in the money supply can start a period of inflation. Oc A continuous rise in prices is possible only with C. continuing increases in the money supply. O d. Repeated supply shocks cannot drive up prices if there is no monetary validation. O e The price level cannot rise without an increase in the money supply.If the NAIRU was 10% and the actual unemployment rate was 9%, we would conclude that O A. the expectational and output-gap effects would both likely mean no change in nominal wages. O B. the sticky wages would mean no decrease in nominal wages. O C. there would be no output-gap effect because unemployment was very high. D. the unemployment rate would have to fall further before the expectational effect would influence wage changes. O E. the output-gap effect would work to increase nominal wages for workers.During periods of volatile inflation, there is O a. certainty about the price of one good relative to another. O b. less uncertainty C. important information O d. greater uncertainty O e. no information
- Why could inflation be persistent in times of output gaps? O a. Because of inflation expectations O b. Because of wage contracts that were signed some time ago O c. Because of menu costs in adjusting prices frequently O d. All of the answers are correctQUESTION 2 The interaction of demand-pull and cost-push inflation will result: O a. in permanently lower output and prices O b. in permanently higher output and prices Oc. in the same output and lower prices Od. in the same output and higher pricesHow can a stagflation turn into a cost-push inflation process? A stagflation can turn into a cost-push inflation process when OA. the quantity of money persistently decreases O B. taxes consistently increase OC. the quantity of money persistently increases O D. the money wage rate decreases