Econ 202 Exam 1 Questions With Correct Answers

Real interest rate =


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= nominal interest rate - inflation rate.




The following appeared in a newspaper​article:
​"Inflation in the Lehigh Valley during the first quarter of​[the year] was less than half
the national​rate...So, unlike much of the​nation, the fear here is​deflation-when prices
sink so low that the CPI drops below​zero."
​Source: Dan​Shope, "Valley's Inflation Rate​Slides," (Allentown,​PA) Morning Call​, July​
9, 1996.
Do you agree with the​reporter's definition of deflationLOADING...​?
A.
Yes. Deflation is caused by a negative CPI.
B.
No. Deflation is defined as a negative inflation rate.

,Your answer is correct.
C.
No. Deflation occurs when the nominal interest rate is greater than the real interest
rate.
D.
Yes. When prices fall too​low, the CPI is negative.


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b




The substitution bias and the quality bias cause the CPI to


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overstate the cost of living and the inflation rate.




To be considered Unemployed:


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Must be Actively Looking for a Job




High unemployment insurance payments can increase


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, the natural rate of unemployment rate.




Which one of the following is not a determinant of consumption​spending?
A.
Current disposable income.
B.
The interest rate.
C.
The growth rate in the United States relative to the growth rates in other countries.
Your answer is correct.
D.
Household wealth.


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c




The multiplier equation implies that the


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Δ Real GDP = Δ Autonomous Expenditure x (1/1-MPC)
Δ Real GDP = Shift in AE Line x Multiplier




Unemployment Rate =


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