In the United States, the most recent use of wage and price controls occurred during the:
a. Nixon administration.
b. Carter administration.
c. Reagan administration.
d. Clinton administration.
QUESTION 2Suppose you place 10,000 in a retirement fund that earns a nominal interest rate of 8 percent. If you expect inflation to be 5 percent or lower, then you are expecting to earn a real interest rate of at least:
a. 1.6 percent.
b. 3 percent.
c. 4 percent.
d. 5 percent.
QUESTION 3The Laffer curve is based on the idea that if the tax rate is sufficiently high, then raising it even more will actually reduce total tax revenues. According to Laffer, this happens because the growing tax rates reduce economic activity at an even faster rate.
a. True
b. False
Indicate whether the statement is true or false
QUESTION 4Which of the following is not an example of an incomes policy?
a. Presidential jawboning.
b. Unemployment insurance.
c. Wage and price guidelines.
d. Wage and price controls.
QUESTION 5Assume that the real rate of interest is 5 percent and a lender charges a nominal interest rate of 15 percent. If a borrower expects that the rate of inflation next year will be 10 percent and the actual rate of inflation next year is 10 percent,
a. the lender benefits from inflation, while the borrower loses from inflation.
b. the borrower benefits from inflation, while the lender loses from inflation.
c. neither the borrower nor the lender benefits from inflation.
d. both the borrower and the lender lose from inflation.
QUESTION 6Which of the following statements is true?
a. A political business cycle is one created by the incentive for politicians to manipulate the economy to get re-elected.
b. Adaptive expectations theory argues that the best indicator of the future is recent information.
c. Incomes policies tend to be ineffective over time.
d. Incomes policies include jawboning, wage-price guidelines, and wage-price controls.
e. All of these.
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