Question Details

The nominal interest rate should be approximately 



1. If the money supply is growing at 9%, the real interest rate is 3%, the real rate of growth of GDP is 2%, and financial innovations are reducing the demand for money by 1% per year, the nominal interest rate is 
a) 8% b) 9% c) 10% d) 11% 77 
2. Suppose the real interest rate is 3%, the real growth rate is 2%, the money multiplier is 4, banking innovations are decreasing the demand for money by 1% per year and the money supply is growing at 10% per year. What should be the price of a T-bill due to mature in one year at its face value of $1,000? 
a) less than $895 b) more than $895 but not more than $900 
c) more than $900 but not more than $905 d) more than $905 
3. Suppose interest income is taxed at 50%. If the real interest rate is 3%, how much extra tax is paid on interest earned from $10,000 when expected inflation is 6% rather than 2%? 
a) $150 b) $200 c) $250 d) $400 
4. Suppose velocity is increasing at 1% per year, the real rate of growth of the economy is 2%, the real interest rate is 3%, and the rate of growth of the money supply is 4%. The nominal interest rate should be approximately 
a) 4% or less b) 5% c) 6% d) 7% or more 
5. If the interest rate exceeds 15%, the most appropriate policy for lowering it is 
a) decreasing the money growth rate b) lowering the discount rate 
c) increasing the money supply d) restricting capital inflows.



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