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| 1.
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The price of an airplane ticket between London and Paris increases from €85 to €93.50. If the prices of other goods and services are rising by 10 % on average, then the relative
price of airplane tickets has: |
| | A) | Increased by 5% |
| | B) | Increased by 10% |
| | C) | Decreased |
| | D) | Remained constant |
| | E) | Increased |
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| 2.
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Making more frequent, but smaller cash withdrawals from banks _____ the inflation losses from holding cash and ____ the shoe leather costs of inflation. |
| | A) | increases; increases |
| | B) | increases; reduces |
| | C) | reduces; has no impact on |
| | D) | reduces; reduces |
| | E) | reduces; increases |
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| 3.
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If the market interest rate is 9% and the inflation rate is 3%, then the real interest rate equals: |
| | A) | 3% |
| | B) | 6% |
| | C) | 9% |
| | D) | 12% |
| | E) | 27% |
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| 4.
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The consumer price index for Euroland consists of only two items: books and hamburgers. In 2004, the base year, the typical consumer purchased 5 books for €20 each
and 30 hamburgers for €1 each. In 2005, the typical consumer purchased 8 books for €22 each and 36 hamburgers for €1.50 each. The consumer price for 2005 on Euro land equals: |
| | A) | 1.00 |
| | B) | 1.08 |
| | C) | 1.15 |
| | D) | 1.19 |
| | E) | 1.77 |
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| 5.
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The CPI in year one equaled 1.45. The CPI in year two equaled 1.53. The rate of inflation between years one and two was _____ percent. |
| | A) | 5.5 |
| | B) | 5.0 |
| | C) | 4.5 |
| | D) | 4.0 |
| | E) | 3.5 |
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| 6.
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An unexpected rise in inflation can result in all of the following EXCEPT: |
| | A) | Redistribute purchasing power from those on fixed State pensions to the
govenment. |
| | B) | Redistribute purchasing power from employees to employers. |
| | C) | Benefit borrowers at the expense of lenders. |
| | D) | Benefit firms who supply goods under fixed-price contracts |
| | E) | Lead to lower real interest rates |
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| 7.
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A college graduate in 1972 found a job paying €10,000. The CPI was 0.418 in 1972. A college graduate in 2000 found a job paying €30,000. The CPI was 1.68 in 2000. The 1972 graduate's job paid ____ in nominal terms and ______ in real terms than the 2000
graduate's job. |
| | A) | More; less |
| | B) | More; more |
| | C) | Less; the same |
| | D) | Less, more |
| | E) | Less, less |
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| 8.
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Jacinta’s hourly wage of €15 is indexed to inflation. If over the course of a year the CPI increases from 1.00 to 1.20, Jacinta should expect a wage increase of? |
| | A) | €1.00 |
| | B) | €1.50 |
| | C) | €2.00 |
| | D) | €2.75 |
| | E) | €3.00 |
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| 9.
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9. Joe’s filling station opens 7 days a week and 52 weeks per year. Joe needs €10,000 per day for customer transactions and withdraws €70,000 in cash from the bank each Monday
morning. Joe estimates the shoe leather costs of a visit to the bank at €2 per trip. If inflation is 5%, the cost annual cost of holding cash is: |
| | A) | €3,504 |
| | B) | €604 |
| | C) | €2,104 |
| | D) | €2,004 |
| | E) | €2,504 |
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| 10.
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The Fisher effect is the tendency for _____ interest rates to be high when the inflation rate
is ____. |
| | A) | Real; high |
| | B) | Real; low |
| | C) | Nominal; high |
| | D) | Nominal; low |
| | E) | Nominal; steady |
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