1. Which of the following pairs of assets would provide the least protection from inflation?

Gold and cash

Stocks and bonds

Real estate and stocks

Cash and bonds

2. The level of economic activity will slow down if there is:

a reduction in total spending.

an increase in the budget deficit.

a decline in the value of the dollar in international currency markets

a decline in interest rates.

3. What macroeconomic phenomenon would cause nominal interest rates to rise in the near future.

An increase in household and corporate taxes.

Recession

An economic contraction

Higher inflation

4. Which of the following correctly fills in the blank? A real asset holder will become poorer if the nominal value of his real asset rises _______________.

by a rate equal to inflation.

by a rate lower than inflation.

by a rate greater than inflation.

-- not true! The real asset holder will only become poorer if the nominal value of the asset goes down.

5. If the rate of inflation were to fall, all other things remaining constant, the real interest rate on a fixed rate loan that you took out six months ago will:

go up

fall by a rate equal to the inflation rate.

fall by a rate greater than the inflation rate.

fall by a rate lower than the inflation rate.

6. Which of the following correctly fills in the blank? Unanticipated inflation hurts ____________.

Everyone

Borrowers

Lenders

Real asset holders

7. If the rate of inflation were to fall, all other things remaining constant, the real interest rate on a fixed rate loan that you took out six months ago will:

go up

fall by a rate equal to the inflation rate.

fall by a rate greater than the inflation rate.

fall by a rate lower than the inflation rate.