2.5, 2.6 & 2.7 - Inflation, Real v Nominal + Business Cycles

Which of the following allows an individual to gain from unexpected inflation?

• Living on a fixed income

• Working at the minimum wage

• Lending money at a fixed interest rate

• Borrowing money at a fixed interest rate

• Saving money in a fixed-interest-rate savings account

Which of the following would most likely benefit from unexpected deflation?

• Lenders

• Borrowers

• Retail shop owners

• Governments in debt

• Automobile manufacturing firms

Which of the following will most likely result from deflation?

• Increased nominal interest rates

• Increased business profits

• Increased real value of fixed incomes

• Decreased purchasing power of cash

• Decreased real wealth

When the average price level increases by 10 percent in a given year, which of the following must increase by 10 percent for real output to remain constant?

• Real national income

• Nominal national income

• The international value of the currency

• Real interest rates

• Nominal interest rates

The major difference between real and nominal gross domestic product (GDP) is that real GDP

• excludes government transfer payments

• excludes imports

• is adjusted for price-level changes using a price index

• measures only the value of final goods and services that are consumed

• measures the prices of a market basket of goods purchased by a typical urban consumer

The table above shows the nominal gross domestic product (GDP) and the price index for an economy during the period 2012 and 2013. Which of the following would have occurred from 2012 to 2013?

• Real GDP decreased by 20%.

• Real GDP decreased by 10%.

• Real GDP increased by 20%.

• Real GDP increased by 10%.

• Real GDP did not change.

According to the data above, in which year was real gross domestic product (GDP) the largest?

• 1980

• 1990

• 2000

• 2010

• 2015

Which of the following typically occurs during an expansionary phase of a business cycle?

• Nominal interest rates decrease.

• Income taxes decrease.

• The price level decreases.

• Government transfer payments increase.

• Employment increases.

Which of the following necessarily occurs during an economic recession?

• Cost-push inflation decreases.

• Real gross domestic product decreases.

• Cyclical unemployment decreases.

• Demand-pull inflation increases.

• Nominal wages increase.

Which of the following describes a typical business cycle in the correct sequence?

• Peak, trough, recession, and expansion

• Peak, trough, expansion, and recession

• Peak, recession, trough, and expansion

• Peak, recession, expansion, and trough

• Peak, expansion, trough, and recession