QUESTION 9 10 point If inflation is 10 percent per year and you receive a 20 per

Question

QUESTION 9 10 point If inflation is 10 percent per year and you receive a 20 percent raise in income, then your O Real and nominal incomes both fall Real and nominal incomes both rise Real income fallsbut nominal income rises , Real income rises, but nominal income falls. QUESTION 10 10 points If the economy is in a severe recession, which of the following is the fiscal policy most effective in stimulating production? O Government spending increases. O Government spending decreases Personal income taxes are increased. O The Federal Reserve buys bonds on the open market.

Explanation / Answer

ANSWER.)

Q9.) Real and nominal incomes both rise

Note that a 20% raise in income is a nominal % increase in income. for real increase

Remember that

Real interest rate = Nominal interest rate - expected inflation

Real interest rate = 20 - 10 = 10

Therefore Real income also increased by 10%.

Q10.) Government spending increases.

Expansionary fiscal policy is needed to deal with recession.

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