Chapter 5 (5.2)

Question 1

Because of how it is defined, the real interest rate can never be negative.

true
false

Answer 1

false

Question 2

The unemployment rate is defined as

the percentage of the population not working.
the percentage of the labor force not working.
the number of people in the population who do not work.
the percentage of the labor force not working full-time.
the number of people in the labor force who do not work.

Answer 2

the percentage of the labor force not working.

Question 3

A decline in the rate of inflation is referred to as deflation.

true
false

Answer 3

false

Question 4

Suppose that at a given point in time the rate of inflation in the economy is equal to 5 percent and the nominal interest rate is 3 percent. What is the real interest rate consistent with this situation?

–2 percent
–5 percent
5 percent
2 percent
7 percent

Answer 4

-2

Question 5

You can invest $20,000 in two different types of accounts at a bank. One account pays interest of 7 percent per year, the other pays interest of 4 percent per year plus the rate of inflation. What is the real return you will receive after one year for each account if the inflation rate is 5 percent?

$400 and $800
$2,400 and $1,800
$400 and $1,800
$1,400 and $1,800
$1,400 and $800

Answer 5

$400 and $800