Question

Question 37 (1 point)

Which of the following statements is true?

a	“Inflation premium” is the amount that the interest rate is raised to cover the effects of anticipated inflation. The “inflation premium” is the expected rate of inflation.
b	(Ex-ante) “Real interest rate” is defined as the nominal interest rate minus the “inflation premium”.
c	In the past, deflation has been as much a problem as inflation.
d	All of the above.
e	Only a) and b)

Question 38 (1 point)

Which of the following statements is true?

a	The Great Depression of the 1930s was a period of increasing prices and wages.
b	When there is deflation, many people may decide to postpone purchases, since they believe that by waiting they could save good money. The problem is that, by postponing purchases, people reduce today’s sales, production, and employment, which aggravates the recession and may cause even more deflation, as firms may be forced to slash prices to entice people to buy their goods.
c	Cost-push inflation (resource prices rise unexpectedly) can reduce output, employment and real income.
d	All of the above.
e	Only b) and c)

Question 39 (1 point)

Which of the following statements is true?

a	Mild inflation may be a healthy by-product of a prosperous economy (as an economy grows, resources become scarce, and the cost of production and prices may increase some “more”) or it may have an undesirable impact on real income (income’s loss of purchasing power).
b	Hyperinflation is extraordinarily high inflation (50% monthly inflation rate or more).
c	Hyperinflation can devastate an economy. Prices are increasing so fast that firms don’t know what to charge, consumers don’t know what to pay, and money becomes worthless.
d	All of the above.
e	Only a) and b)

Answer 1

Q 37. (D)

reason all option related to inflation are correct as , "Inflation premium" is amount that interest rate is raised to cover effects of anticipated inflation. "Real interest rate" = nominal rate -  inflation premium. and great depression of 1930 as more severe even in comparison to inflation occurred in past.

Q.38 (E)

reason  Cost-push inflation, where resource prices rise unexpectedly, could cause both output and employment to decline. Real income falls. When there is deflation, many people may decide to postpone purchases, since they believe that by waiting they could save good money. people reduce today’s sales, production, and employment, which aggravates the recession and may cause even more deflation, as firms may be forced to slash prices to entice people to buy their goods. in great depression price usually down not increases

Q.39 (D)

Mild inflation may be a healthy by-product of a prosperous economy it may have an undesirable impact on real income (income’s loss of purchasing power. during the hyperinflation people have to spend more to get goods and supplier has no chance to change in supply side even they could not think of it. hyperinflation is termed as when it increases more than 50%