Unit 8 Test The Role of Money and Banking

What happens when you have more money chasing the same goods?

• Purchasing power stays the same.

• Purchasing power decreases, and you need more money to buy the same goods as before.

• Purchasing power increases, and you need less money to buy goods.

What is a price index used to measure inflation called?

• Inflation rate

• Consumer price index

• Annual inflation rate

What is a measurement tool used to place a price value on groups of goods and services called?

• Price Index

• Annual inflation rate

• Inflation rate

What is the percentage rate of change in the price level over time called?

• Inflation rate

• Price Index

• Consumer price index

Which of the following show inflation acting on purchasing power?

• Prices stay the same, and interest rates stay the same.

• Prices decrease; nominal rates of interest decrease.

• Prices increase; nominal rates of interest increase.

Real Interest Rate is?

• Interest rate adjusted for inflation

• A general rise in overall prices

• Ease with which any asset can be converted to cash

Interest rate before taking inflation into account is called?

• Real interest rate

• Nominal interest rate

• Inflation

When the U.S. central bank decreases the money supply by decreasing the lending capacity of banks is called?

• Purchasing power

• Nominal interest rate

• Contractionary monetary policy

If the nominal rate of interest is 7% and the expected rate of inflation is 3%, the real interest rate is _________?

• 7%

• 4%

• 3%

You buy a $100 U.S. Treasury not that promises to pay 10%. When you go to cash it in, inflation is 4% over the period. The __________ rate of interest is 6%

• Real

• Nominal

• Quality