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Real Rate=
(Expected) Rate of Inflation=
Nominal Rate=
Real Rate= Nominal Rate – (Expected) Rate of Inflation
(Expected) Rate of Inflation= Nominal Rate – Real Rate
Nominal Rate= Real Rate + (Expected) Rate of Inflation
(Note: Nominal and real rates can be interest rates, economic growth rates, or income growth rates.)
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In which of the following situations would the nominal interest rate be the highest?
1. The real interest rate is -1 percent, and the expected inflation rate is 3 percent
2.T he real interest rate is 0 percent, and the expected inflation rate is 1 percent
3. The real interest rate is 1 percent, and the expected inflation rate is -1 percent
4. The real interest rate is 2 percent, and the expected inflation rate is 2 percent
5. The real interest rate is 3 percent, and the expected inflation rate is 0 percent
4. The real interest rate is 2 percent, and the expected inflation rate is 2 percent. (4)
Added both percentages. The highest will be the nominal interest rate
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In which of the following situations would it be MOST advantageous to be lending?
1. The nominal interest rate is 1 percent, and the expected inflation rate is 0 percent
2. The nominal interest rate is 3 percent, and the expected inflation rate is 1 percent
3. The nominal interest rate is 4 percent, and the expected inflation rate is 7 percent
4. The nominal interest rate is 13 percent, and the expected inflation rate is 9 percent
5. The nominal interest rate is 15 percent, and the expected inflation rate is 15 percent
4. The nominal interest rate is 13 percent, and the expected inflation rate is 9 percent. (4)
Subtract the inflation % from the nominal % (13-9= 4). The highest answer will be the most advantageous.
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Suppose Lori agrees to lend her sister Holly $1000 for one year at a fixed nominal rate of interest. Suppose further that, at the time the loan is made, both Lori and Holly expect the rate of inflation to be 3 percent. If the actual inflation rate turns out to be 4 percent during the year, then Lori will be _____ off than she expected and Holly will be _____ off than she expected, everything else held constant.
1. better; better
2. better; worse
3. worse; better
4. worse; worse
3. worse; better
- Expected Real= Nominal-Expect. Infl.
- = X-3
- Actual Real= Nominal-Actual Infl.
- = X-4
- Expected Real > Actual Real
- In reality, lower real interest rate
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If real income has increased by 2 percent and the aggregate price level has increased by 5 percent, then nominal income has _____ by _____ percent, everything else held constant.
1. increased; 0.4
2. decrease; 0.4
3. increased; 2.5
4. decrease; 2.5
5. increased; 3
6. decreased; 3
7. increased; 7
8. decreased; 7
9. increased; 10
10. decreased; 10
7. increased; 7
- R= +2%, infl= +5%
- Nominal= R+Infl= +7%
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Suppose you purchase a new desk that was produced in the U.S. for use in your home in Baton Rouge. Everything else held constant, this will cause the _____ component of U.S. GDP to increase.
1. consumption (C)
2. investment (I)
3. government spending (G)
4. export (X)
5. import (IM)
1. consumption (C)
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Suppose Colleen purchases a new reception desk that was produced in the U.S. for use in her privately-owned medical office in Baton Rouge. Everything else held constant, this will cause the _____ component of U.S. GDP to increase.
1. consumption (C)
2. investment (I)
3. government spending (G)
4. export (X)
5. import (IM)
2. investment (I)
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Suppose LSU purchases a new desk that was produced in the U.S. for use in the Economics Department office. Everything else held constant, this will cause the _____ component of U.S. GDP to increase.
1. consumption (C)
2. investment (I)
3. government spending (G)
4. export (X)
5. import (IM)
3. government spending (G)
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Suppose a privately-owned laundromat in Mexico purchases a new clothes dryer produced in the U.S. Everything else held constant, this will cause the _____ component of U.S. GDP to increase.
1. consumption (C)
2. investment (I)
3. government spending (G)
4. export (X)
5. import (IM)
4. export (X)
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Suppose a privately-owned laundromat in Mexico purchases a new clothes dryer produced in the U.S. Everything else held constant, this will cause the _____ component of Mexican GDP to increase.
1. consumption (C)
2. investment (I)
3. government spending (G)
4. net export (X - IM)
2. investment (I)
(net export (X-IM) is a decrease)
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Suppose that a department store added domestically-produced refrigerators to its inventory in August 2023 because it expected an increase in demand for them. The store miscalculated the preferences of its customers, however, and was not able to sell the refrigerators until January 2024. The refrigerators added to the store's inventory in August 2023.
1.will be counted in 2024 GDP because they were sold that year
2. will not be counted in 2023 GDP because they were intermediate goods that year
3. will be counted in 2023 GDP as part of consumption (C)
4. will be counted in 2023 GDP as part of investment (I)
4. will be counted in 2023 GDP as part of investment (I)
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| Year/Quarter | Annual percent change in real GDP, seasonally adjusted |
|---|
| 1968q1 | 8.4 | | 1968q1 | 6.9 | | 1968q3 | 3.1 | | 1968q4 | 1.6 | | 1969q1 | 6.4 | | 1969q2 | 1.2 | | 1969q3 | 2.7 | | 1969q4 | -1.9 | | 1970q1 | -0.6 | | 1970q2 | 0.6 | | 1970q3 | 3.7 | | 1970q4 | -4.2 |
How many technical recessions did the United States experience in the period listed above? Why?
Only one technical recession, 1968q4-1970q1 (negative real GDP growth for consecutive periods)
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The seasonally adjusted data below depict the performance of the economy of the United States in five quarters of 2023-2024.
| Year/Quarter | Annual % Change Nominal GDP | Annual % Change Real GDP |
|---|
| 2023/Q3 | 7.7 | 4.4 | | 2023/Q4 | 4.8 | 3.2 | | 2024/Q1 | 4.7 | 1.6 | | 2024/Q2 | 5.6 | 3.0 | | 2024/Q3 | 4.7 | 2.8 |
In the period above, did the United States experience a technical recession?
1. Yes
2. No
2. No
There were no two consecutive quarters with negative growth in GDP
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The seasonally adjusted data below depict the performance of the economy of the United States in five quarters of 2023-2024.
| Year/Quarter | Annual % Change Nominal GDP | Annual % Change Real GDP |
|---|
| 2023/Q3 | 7.7 | 4.4 | | 2023/Q4 | 4.8 | 3.2 | | 2024/Q1 | 4.7 | 1.6 | | 2024/Q2 | 5.6 | 3.0 | | 2024/Q3 | 4.7 | 2.8 |
In the third quarter of 2024, the economic growth rate was _____ it was in the first quarter of 2024.
1. higher than
2. lower than
3. the same as
1. higher than
2.8 > 1.6
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The seasonally adjusted data below depict the performance of the economy of the United States in five quarters of 2023-2024.
| Year/Quarter | Annual % Change Nominal GDP | Annual % Change Real GDP |
|---|
| 2023/Q3 | 7.7 | 4.4 | | 2023/Q4 | 4.8 | 3.2 | | 2024/Q1 | 4.7 | 1.6 | | 2024/Q2 | 5.6 | 3.0 | | 2024/Q3 | 4.7 | 2.8 |
In the second quarter of 2024, the inflation rate was _____ it was in the fourth quarter of 2023.
1. higher than
2. lower than
3. the same as
1. higher than
- 2023Q4: 4.8-3.2= 1.6
- 2024Q2:5.6-3.0= 2.6
2.6 > 1.6
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The seasonally adjusted data below depict the performance of the economy of the United States in five quarters of 2023-2024.
| Year/Quarter | Annual % Change Nominal GDP | Annual % Change Real GDP |
|---|
| 2023/Q3 | 7.7 | 4.4 | | 2023/Q4 | 4.8 | 3.2 | | 2024/Q1 | 4.7 | 1.6 | | 2024/Q2 | 5.6 | 3.0 | | 2024/Q3 | 4.7 | 2.8 |
In the third quarter of 2024, the aggregate price level was _____ it was in the third quarter of 2023.
1. higher than
2. lower than
3. the same as
1. higher than
- 2023Q3: 7.7-4.4= 3.3
- 2024Q3: 4.7-2.8= 1.9
3.3 > 1.9
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