5. A price index was 250 at this time last year, and it is now at 260. What was

ID: 1177912 • Letter: 5

Question

5. A price index was 250 at this time last year, and it is now at 260. What was the rate of inflation over the last year?

3.8%

4.0%

5.0%

10.0%

6. When the rate of inflation is higher than what people had expected it to be, who will be hurt by the inflation?

people who hold assets like gold and real estate.

people who hold assets like bonds and cash.

people who have borrowed money.

young, highly skilled workers.

7. The interest rate on loans that the Federal Reserve System makes to banks is called

the money-market rate.

the federal funds rate.

the required reserve rate.

the discount rate.

8. Banks' reserves consist of

only the cash in banks' vaults.

cash in banks' vaults and banks' deposits at the Federal Reserve Bank.

cash in banks' vaults and the bonds and other securities that the banks own.

only the bonds and other securities that the banks own.

9. If the Federal Reserve System increases the size of banks' reserves by $60 billion and if the required reserve ratio is 4%, then the size of the money supply potentially could

decrease by $24 billion.

decrease by $1,500 billion

increase by $24 billion.

increase by $1,500 billion.

10. If we look at different countries around the world, we see that a country's rate of inflation is about the same as

its unemployment rate.

its real interest rate.

the growth rate of its population.

the growth rate of its money supply.

11. If the Federal Reserve System wants to decrease the money supply, it could

increase the discount rate.

decrease the required reserve ratio.

buy securities.

raise taxes

12. Which area in the graph represents the net gain to the U.S. from importing widgets?

Use the graph below to answer the next four questions.
It shows the U.S. demand and supply curves for widgets.
The price of widgets in the rest of the world is $45 each.

B + D + E + F

B + C

E + F

13. "My firm cannot hope to compete against imports from countries that pay their workers almost nothing. If the government does not support us by imposing a tariff on imports, we will have to lay off all of our workers."

This argument is

a valid reason for giving the firm protection.

an invalid reason for protection because it ignores the gains from comparative advantage.

an invalid reason for protection because imports do not threaten American jobs.

an invalid reason for protection because it foreign wage rates are about the same as U.S. wage rates.

14. It is ________ for a country to have the absolute advantage in producing all goods, and it is ______ for a country to have the comparative advantage in producing all goods.

possible . . . possible

possible . . . impossible

impossible . . . possible

impossible . . . impossible

Explanation / Answer

inflation = 260/250 -1 = 4.0%