What interest rate should a banker charge for a loan if she expects that the inflation rate will average about 2.4% over the length of the loan, but wants she a 3% real rate of return?
A. 0.072
B. 0.054
C. 0.03
D. 0.024
E. 0.006
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Which of the following is TRUE?
A. the costs of unemployment on output are more apparent than the cost of inflation on output
B. the costs of inflation on output are more apparent than the cost of unemployment on output
C. the costs of inflation on output can be measured by Okun's law
D. unanticipated inflation only imposes a cost on currency holders
E. there are no costs to society from anticipated inflation
When inflation rises unexpectedly, it is generally the case that
A. nominal interest rates and real interest rates will both rise at the same rate
B. nominal interest rates will rise while real interest rates will decline
C. real interest rates will rise while nominal interest rates will decline
D. all nominal wages will immediately be adjusted upwards
E. real wages will have to be adjusted upwards
If inflation were always completely unanticipated, then
A. the real rate of return on interest-bearing assets could not be easily predicted
B. real interest rates would always be negative
C. menu costs would not occur
D. there would not be a need for wage indexation
E. all of the above
Economists tend to agree that
A. the best inflation target is a zero percent inflation rate
B. the best inflation target is a two percent inflation rate
C. policy makers should never set inflation targets
D. any inflation target is fine, as long as policy makers announce it in advance
E. it is silly to think that all economists will ever agree on anything