1. Which of the following is not true? "Unanticipated inflation ......"
-hurts homeowners with a fixed rate mortgage
-hurts lenders
-benefits real asset holders
-hurts nominal asset holders
2. Suppose you sign a contract with your bank to borrow $50,000 for ten years at a fixed interest rate of 6%. If, over the years of the loan, the rate of inflation falls, the real interest rate on that loan will
- Go up
-Go down
-stay the same
-There is not enough information to determine the direction of the real interest rate in this case
3. If you hold your savings in the form of a nominal asset (other than cash), you are a:
- Speculator
-Borrower
-Lender
-Leveraged investor in real assets
4. Which of the following best describes what happens with nominal assets during inflation?
- The real value of a nominal asset will tend to rise during inflation, sometimes by a rate greater than inflation.
- The real value of a nominal asset will fall.
- The market value of a nominal asset will rise by an amount that is always precisely equal to the rate of inflation
- The real value of the nominal asset will remain the same during inflation.