The period of declining growth in real GDP, between the peak of the business cycle and the trough, is called the:
a. contractionary phase.
b. boom.
c. expansionary phase.
d. static phase.
Question 2Economists use the term business cycle to refer to:
a. the growth of small businesses into major corporations.
b. qualitative changes in products resulting from improved technology.
c. fluctuations in economic activity, measured by GDP or unemployment.
d. periods of increase or decrease in the rate of inflation.
Question 3Which of the following does not lead to the CPI underestimating increases in prices?
a. The substitution bias
b. The quality bias
c. The new outlet bias
d. The housing bias
Question 4Which of the following biases the CPI to underestimate increases in prices?
a. The substitution bias
b. The quality bias
c. The new outlet bias
d. None of the above
Question 5If the nominal rate of interest is 10.5 percent, and the inflation rate is 4.3 percent, what is the real rate of interest?
a. 3.0 percent
b. 4.3 percent
c. 6.2 percent
d. 10.5 percent
Question 6Given a fixed nominal interest rate on a loan, unanticipated deflation:
a. decreases the burden of paying off the loan.
b. increases the burden of paying off the loan.
c. does not alter the burden of paying off the loan.
d. has an indeterminate effect on the burden of paying off the loan.
Question 7Given a fixed nominal interest rate on a loan, unanticipated inflation:
a. decreases the burden of paying off the loan.
b. increases the burden of paying off the loan.
c. does not alter the burden of paying off the loan.
d. benefits savers.
Question 8An unanticipated increase in inflation will:
a. redistribute income from employers to workers.
b. redistribute income from lenders to borrowers.
c. redistribute income from borrowers to lenders.
d. do none of the above.
Question 9Which of the following refers to extremely high rates of inflation for sustained periods of time?
a. deflation
b. hyperinflation
c. bust
d. depression
Question 10The costs imposed on a firm from changing listed prices is termed:
a. the nominal cost of inflation.
b. the shoe-leather cost of inflation.
c. the menu cost of inflation.
d. the implied cost of inflation.
Question 11Say that initially the nominal interest rate is 6 and prices are stable, but the inflation rate the following year rises to 3. If the real rate of interest is to remain unchanged, the nominal interest rate in the second year must:
a. rise by 9 percentage points.
b. rise by 6 percentage points.
c. rise by 3 percentage points.
d. remain unchanged.
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