Assignment Unit02. This is a preview of the draft version of the quiz. Question 1. Question 2. 0 / 1 pts. 0 / 1 pts. Published Preview Edit.

Transcription

1 You submitted this quiz late, and your answers may not have been recorded. Published Preview Edit Assignment Unit02 This is a preview of the draft version of the quiz Quiz Type Points Assignment Group Shuffle Answers Time Limit Multiple Attempts Score to Keep Attempts View Responses Show s One Question at a Time Graded Quiz 30 Assignments No No Time Limit Yes Highest Unlimited Always Immediately No Due For Available from Until Jan 31 Everyone Feb 1 at 11:59pm Take the Quiz Again Score for this attempt: 0 out of 30 Submitted Feb 23 at 5:05pm This attempt took less than 1 minute. Question 1 You are promised $1 million in 20 years. If the inflation rate averages 6 percent annually over the next 20 years, what is the real value of this $1 million in today's dollars? Less than $311,650 Between $311,650 and $311,750 Between $311,751 and $311,850 More than $311,850 1 Million dollars received 20 years later in today's dollar value= 1 Million * [1/(1+annual inflation rate)] ^ 20= 1 Million * [1/(1+6%)]^20= 1 Million * = Million Question 2 If the annual inflation rate was 2.3% from 2002 to 2003, what would $3000 in 2002 be worth in 2003 dollars? less than $

2 between $ and $ between $ and $ more than $ The value of $3000 in 2003: 3000*[1/(1+2.3%)]= Question 3 There are 3 questions in this group. For convenience the information is repeated for each question. Suppose these are the annual inflation rates for the years in country X: %, %, %, %, %. What was the total inflation rate for ? less than 14.5% between 14.5% and 15.5% between 15.6% and 16.5% more than 16.5% Total inflation=(1.028)*(1.03)*(1.035)*(1.033)*(1.025) 1=0.16=16.0% Question 4 Suppose these are the annual inflation rates for the years in country X: %, %, %, %, %. Which period reflects escalating inflation? Question 5 Suppose these are the annual inflation rates for the years in country X: %, %, %, %, %. Which period reflects disinflation?

3 Question 6 If the CPI last year was 172.2, and the CPI this year (one year later) is 177.1, what was the inflation rate for the year? Less than 2.50%. Between 2.50% and 2.60% Between 2.61% and 2.70% More than 2.70% Inflation rate = CPI this year / CPI last year 1 = 177.1/ = 2.85% Question 7 There are 3 questions in this group. For convenience the information is repeated for each question. In 1989 Joe's salary was $30,000. In 1999 Joe's salary was $45,000. Nice increase, right? Not necessarily. In 1989 the CPI was 124.0, and in 1999 it was What was Joe s 1999 salary in 1989 dollars? Less than $33,490. Between $33,490 and $33,500. Between $33,501 and $33,510. Between $33,511 and $33,520. More than $33,520 Joe's 1999 salary in 1989 dollars: 45,000 * [CPI1989 / CPI1999] = 45,000 * (124.0 / 166.6) = $33,493 Question 8 In 1989 Joe's salary was $30,000. In 1999 Joe's salary was $45,000. In 1989 the CPI was 124.0, and in 1999 it was What was Joe s 1989 salary expressed in 1999 dollars? Less than $40,280 Between $40,280 and $40,290 Between $40,291 and $40,300 Between $40,301 and $40,310 More than $40,310 Joe's 1989 salary in 1999 dollars: 30,000 * [CPI1999 / CPI1989] = 30,000 * (166.6 /124.0) = $40,306

4 Question 9 In 1989 Joe's salary was $30,000. In 1999 Joe's salary was $45,000. In 1989 the CPI was 124.0, and in 1999 it was Was Joe really better off in 1999 than 1989? Yes. No. Question 10 There are 5 questions in this group. For convenience the information is repeated for each question. The table below shows salary information for three people in two different years. The CPI in 2002 was 179.9, in 2003 it was Convert Henry's 2002 salary to 2003 dollars. less than $40,880 between $40,880 and $40,890 between $40,891 and $40,900 more than $40,900 Henry s 2002 salary in 2003 dollars: 40000*184/179.9=40912 Question 11 The table below shows salary information for three people in two different years. The CPI in 2002 was 179.9, in 2003 it was Convert Tom's 2002 salary to 2003 dollars. less than $51,125 between $51,125 and $51,135 between $51,136 and $51,145 more than $51,145

5 Tom s 2002 salary in 2003 dollars: 50000*184/179.9=51140 Question 12 The table below shows salary information for three people in two different years. The CPI in 2002 was 179.9, in 2003 it was Convert Tony's 2002 salary to 2003 dollars. less than $61,350 between $61,350 and $61,360 between $61,361 and $61,370 more than $61,370 Tony s 2002 salary in 2003 dollars: 60000*184/179.9=61367 Question 13 The table below shows salary information for three people in two different years. The CPI in 2002 was 179.9, in 2003 it was Who was "really" better off in 2002 than in 2003? Henry Tom Tony All three Two out of the three Question 14 The table below shows salary information for three people in two different years. The CPI in 2002 was 179.9, in 2003 it was What was the annual inflation rate from 2002 to 2003?

6 less than 2.10% between 2.10% and 2.20% between 2.21% and 2.30% more than 2.30% Annual inflation rate=184/ =2.28% Question 15 The $10,000 you use as a downpayment on a house could have been invested in a Certificate Deposit (CD) paying an annual interest rate of 7 percent. Therefore, what is one opportunity cost of using the $10,000 as a downpayment for the first year? The forgone interest earning on the CD, which is less than $700. The forgone interest earning on the CD, which is $700. The forgone interest earning on the CD, which is more than $700. There is no opportunity cost. Opportunity cost = The interest that could have been generated= 10,000 * 7% = 700 Question 16 If the real interest rate is 4 percent and the expected inflation rate is 7 percent, what is the nominal interest rate? Less than 9.00%. Between 9.00% and 10.00%. Between 10.01% and 11.00%. More than 11.00%. Nominal interest rate= real interest rate + inflation rate + real interest rate * inflation rate= 4% + 7% + (4% * 7%) = 11.28% Question 17

7 If the inflation rate was 3% from 1999 to 2000, and the nominal interest rate in 1999 was 5%, what is the real interest rate? less than 1.75% between 1.75% and 1.85% between 1.86% and 1.95% more than 1.95% Real interest rate= (nominal interest rate inflation rate)/(1+ inflation rate)=(5% 3%)/(1+3%)=1.94% Question 18 Susan thinks she has a 30% chance of getting a GPA of 3.50 this year, a 20% chance of getting a GPA of 3.00, and a 40% chance of getting a GPA of 2.50, and a 10% chance of getting a GPA of What is Susan s expected GPA for the year? Less than 1.50 Between 1.50 and 2.50 Between 2.51 and 3.50 Between 3.51 and 4.50 More than 4.50 Expected GPA=3.5*30%+3.0*20%+2.5*40%+2.0*10%=2.75 Question 19 There are 3 questions in this group. For convenience the information is repeated for each question. In 1989, Rose borrowed $10,000 from Mary. In 1994, Rose repaid $11,000 to Mary. In 1989 the CPI was 124.0, in 1994 it was Adjusting for inflation, how much was $10,000 in 1989 when expressed in 1994 dollars? less than $11,935 between $11,935 and $11,945 between $11,946 and 11,955 more than $11,955 $10,000(1989) expressed in 1994 dollars: 10000*148.2/124=11952 Question 20 In 1989, Rose borrowed $10,000 from Mary. In 1994, Rose repaid $11,000 to Mary. In 1989 the CPI was In 1994 the CPI was Adjusting for inflation, how much was $11,000 in 1994 when expressed in 1989 dollars?

8 less than $9,200 between $9,200 and $9,210 between $9,211 and $9,220 more than $9,220 $11,000(1994) expressed in 1989 dollars: 11000*124/148.2=9204 Question 21 In 1989, Rose borrowed $10,000 from Mary. In 1994, Rose repaid $11,000 to Mary. In 1989 the CPI was 124.0, in 1994 it was If Mary wanted Rose to repay an amount that has the same purchasing power, how much more did Rose have to pay in addition to the $11,000 she already paid? less than $935 between $935 and $945 between $946 and $955 more than $955 Answer: The extra amount Mary should repay: =952 Question 22 Which of the following is nominal interest rate? the interest rate that compensates for risks only the interest rate that compensates for risks and opportunity cost. the interest rate that compensates for risks, opportunity cost, and inflation. the interest rate that compensates for risks, opportunity cost, inflation, and greed. Question 23 There are 3 questions in this group. For convenience the information is repeated for each question. The graph below shows inflation rates over time in country A. Which line reflects escalating inflation?

9 AB BC CD DE Question 24 The graph below shows inflation rates over time in country A. Which line reflects disinflation? AB BC CD DE Question 25 The graph below shows the inflation rates over time in country A. Which line reflects deflation?

10 AB BC CD DE Question 26 Inflation means prices are increasing and the purchasing power of the dollar is declining prices are increasing and the purchasing power of the dollar is increasing prices are decreasing and the purchasing power of the dollar is declining prices are decreasing and the purchasing power of the dollar is increasing Question 27 Interest rate exists because risk are involved in lending people money there is opportunity cost involved in lending other people money money repaid has less purchasing power per dollar than money loaned all of the above Question 28 When it comes to future uncertainties, consumers have to make educated guesses by using a probability weighted average of possible future outcomes. This weighted outcome is called Educated guess

11 Rational guess Expected value Rational value Question 29 Which of the following inflation rates for four consecutive years shows a trend of escalating inflation? 1%, 4%, 6%, 2% 1%, 3%, 7%, 9% 4%, 3%, 2%, 1% 4%, 6%, 5%, 8% Question 30 Which behavior below shows the lowest rate of time preference? The consumer borrows a lot of money for consumption but saves very little. The consumer saves a lot of money and never borrows. The consumer saves some and borrows some. Quiz Score: 0 out of 30