Question 2

Multiple Choice

-

Choose the best answers and explain why by giving either a reason or method

of calculation beside each question.

Questions that have

no

explanation will be considered unanswered

.

Nominal Real

For questions 1

-

3 use the tab

le on the right

Yea

r

CPI

Income

I

ncome

1967

30 116,667

1.

Based on the information

for 1967 1980

40000

The nominal income would be?

1998

163

44988

a.

Nearly 39,000

b.

Nearly 35000

c.

Nearly 67000

d.

Can't tell without a base year

2.

For 1998, real income must be closest to

a

$27000

b

$7080

0

c

nearly $276

d

cannot tell

3.

If in 1980 the real income was $ 60,606, then

a.

the cpi index is below 100

b.

the Cpi index is above 100

c.

the cpi index for 1980 is 100

d.

We cannot determine without the value of the basket of goods

4.

Abraham Lincoln earned $25,000 a year as President in 1863. If the cpi in 1863 was 9 given the base

y

ear of 1982

-

84, was he grossly underpaid compared to Ronald Reagan who earned$ 200,000 as

President during the 1983

-

84 period?

a

Yes

-

He was underpaid by $175,000

b

No. He was actually earning more in real terms

c

No. The $25,000 then was probably worth as much as the

$

200,000 in 1982

-

84.

d

Not enough information to calculate.

5.

During periods of inflation, which of the following is likely to worsen inflation

a

Net exports equal to zero

b

Net exports less than zero

c

Net ex

ports greater than zero

d

All can be harmful

6.

Hyperinflation hit Serbia in 1993 by reaching 1000%. Two of the events are more likely to increase

Demand

-

pull pressure on prices. Which are they?

a

The Serbian government is paying for two years of w

ar by printing money

b

Farmer are refusing to sell wheat for Dinars ( the currency then)

c

Fifty percent of industrial capacity is idle

d

Many workers are on the payroll. They are not producing anything tangible

7.

Samantha invested $2500 of her savings in a certi

ficate of deposit that pays her an annual; 4.25% rate

of interest.

The current annual inflation rate is 5%. Has Samantha made a wise investment

from an

economic perspective

?

a.

Yes

b. No

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