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Exam 6: Fiscal Policy

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Question 61

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When the overall price level falls in an economy,this is not beneficial to consumers because the economy typically gets mired in a severe recession and

A) hyperinflation distorts price signals.
B) indexing raises prices.
C) interest rates increase.
D) real incomes fall.
E) nominal incomes fall.

F) A) and E)
G) A) and C)

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Question 62

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Suppose total expenditures for a typical household in 2002 were $5,500 per month,while the cost of purchasing exactly the same items in 2012 was $7,150.If 2002 is the base year,the consumer price index (CPI) for 2012 equals

A) 83.
B) 100.
C) 120.
D) 125.
E) 130.

F) A) and C)
G) A) and B)

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Question 63

Multiple Choice

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To correct a nominal quantity for changes in the price level,one should

Increases in the rate of inflation will induce consumers to make more frequent trips to the bank to withdraw cash whenever the cost of the extra trips is __________ the benefit of holding less cash subject to purchasing power losses from inflation.

If the market interest rate is 10% and the inflation rate is 3%,then the real interest rate equals

The consumer price index for Macroland consists of only two items: books and pizzas.In 2011,the base year,the typical consumer purchased 5 books for $55 each and 20 pizzas for $6 each.In 2012,the typical consumer purchased 10 books for $80 each and 30 pizzas for $7 each.The consumer price index for 2012 in Macroland equals

-The chart shows that the real interest rate is _______ when the nominal interest rate exceeds the inflation rate and _______ when the nominal rate is below the inflation rate.

The Canadian consumer price index fell from 9.2 in 1929 to 7.1 in 1933.Consequently,a Canadian who saved Canadian dollars in a piggybank from 1929 to 1933 received a windfall gain equivalent to a real rate of return of _______ on his piggybank savings.Such a high real return on cash hoarding suggests that savers would have ________ incentive to make their money available for productive investments during periods of ________.

To counteract inflation,the government could implement all of the following EXCEPT

The consumer price index for Planet Econ consists of only two items: books and hamburgers.In 2011,the base year,the typical consumer purchased 10 books for $20 each and 200 hamburgers for $1 each.In 2012,the typical consumer purchased 12 books for $23 each and 300 hamburgers for $1.15 each.The consumer price index for 2012 on Planet Econ equals

High inflation typically means an inflation rate

This table shows the values of the Canadian consumer price index (CPI) for the years 1998 - 2005. -Using the data in the table above,the rate of inflation between 2002 and 2003 was

The annual percentage rate of change in the price level is the

Deflation is not a sensible policy goal because deflation

Suppose that Canada's official consumer price index (CPI) inflation rate contains a measurement error in that it overstates the true cost of living increases of Canadians by 1% per year.This would mean that,during a year in which the CPI inflation rate is 3%,all senior citizens whose federal pensions are indexed to the CPI inflation rate would experience a ________ in their nominal incomes and a _________ in their real incomes.

This table shows the values of the Canadian consumer price index (CPI) for the years 1998 - 2005. -Using the data in the table above,the rate of inflation between 2004 and 2005 was

In what circumstances would lenders most benefit?

It is difficult to engage in long-term financial planning when inflation is

Suppose the value of the consumer price index (CPI) is 110 in year 1,121 in year 2,and 133.1 in year 3.Assume also that the price of computers increases by 3% between year 1 and year 2,and by another 3% between year 2 and year 3.The price level is increasing,the inflation rate is _______,and the relative price of computers is _________.

Low inflation typically means an inflation rate