1. Julio borrows $250 from Ricky. Ricky wants to make a 5% real return on his money. Both expect inflation to be 2% next year, so they both agree on a 7% interest rate paid next year. Prices actually decreased during that year. Which of the following is correct? A) Ricky will receive less than a 5% real rate of return. B) Julio will pay less than 5% real interest rate. C) Ricky is better off. D) Julio is better off. 2. Which of the following is a criticism of the CPI overstating the measurement of inflation? A) The CPI puts new products into its market basket of goods once these new products are first sold. B) The CPI keeps consumers buying the same amount of a good even when that good's price has increased. C) The CPI measures the change in the prices of both services and goods. D) The CPI makes adjustments for the improvement in the quality of goods and services. 3. In which of the following conditions is the inflation rate likely to rise and the unemployment rate likely to fall? A) stagflation B) expansion C) recession D) hyperinflation