Unanticipated negative inflation will create
A) losses for creditors and gains for debtors.
B) losses for both creditors and debtors.
C) gains for both creditors and debtors.
D) gains for creditors and losses for debtors.
82) Under which one of the following situations would you be better off?
A) You have $10,000 in your savings account paying 5 percent per year, and unanticipated inflation is 8 percent per year.
B) You have paid $500 for a $1,000 Canada savings bond that matures in 10 years, and unanticipated inflation is 10 percent per year.
C) You lend a friend $1,000 at 6 percent to be repaid in one year, and unanticipated inflation is 7 percent during the year.
D) You borrowed $2,500 at 7 percent to pay for this year's college expenses, and unanticipated inflation is 12 percent during the year.
83) Suppose that you borrow $5,000 from the bank to purchase some land, and you agree to pay 9 percent interest on the loan. If the loan must be repaid in 12 months, and the inflation rate is 13 percent during the year, then
A) you will repay the bank with more purchasing power than you initially borrowed.
B) you will repay the bank with fewer dollars than the bank initially loaned you.
C) you will repay the bank with less purchasing power than it initially loaned you.
D) the bank will receive fewer dollars, because of inflation, than it had initially expected to receive.
84) Who stands to gain as a result of continued unanticipated inflation?
C) persons living on a fixed income
D) retired individuals
85) Which of the following statements is correct?
A) If a contract is stated in nominal terms, unanticipated inflation will increase the value of the contract.
B) COLAs adjust wage levels to take into account the consumer price index.
C) Whenever inflation is unanticipated, it affects prices and wages the same, so workers' purchasing power remains unchanged.
D) Unanticipated inflation means that all prices are rising at the same rate.
86) During a period of unanticipated inflation, the group that is most likely to benefit is
D) retired individuals.
87) A cost of living adjustment or COLA
A) is usually pegged to the GDP deflator.
B) increases the nominal value of a contract as the rate of inflation increases.
C) protects the purchasing power of uninvested cash balances.
D) all of these.
88) Most of the problems caused by inflation are caused by the fact that
A) there are no ways available for people to protect themselves against inflation.
B) anticipated inflation induces people to protect themselves against the inflation.
C) inflation causes the purchasing power of the dollar to increase.
D) the inflation is often unanticipated, and therefore comes as a surprise to individuals in the economy.
89) Fully anticipated inflation occurs when
A) the actual inflation rate equals the anticipated inflation rate.
B) the actual inflation rate is less than the anticipated inflation rate.
C) the inflation rate is zero.
D) the anticipated inflation rate and the unanticipated inflation rate are equal.
90) If the actual inflation rate exceeds the anticipated inflation rate, then the real rate of interest
A) is negative.
B) is less than the nominal rate of interest.
C) equals the nominal rate of interest.
D) is more than the nominal rate of interest.
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