b. how quickly the purchasing power of your savings account will grow.

c. the size of your savings account.

d. the purchasing power of your savings account.

ANSWER: B

POINTS: 0 / 1

6. Inflation refers to

a. a temporary increase in the price level due to higher tax rates

b. a large increase in food and gasoline prices

c. a situation in which the economy's overall price level is rising

d. an increase in the purchasing power of the dollar

ANSWER: C

POINTS: 0 / 1

7. If nominal interest rates increase from 8 percent to 10 percent while inflation increases from 3 percent to 12 percent

a. the real interest rate falls from 5 percent to –2 percent

b. the real interest rate rises from –2 percent to 5 percent

c. the real interest rate falls from 8 percent to 12 percent

d. the real interest rate rises from 8 percent to 12 percent

ANSWER: A

POINTS: 0 / 1

8. If the nominal rate of interest is 10 percent and the rate of inflation is 3 percent, what is the real rate of interest? a. 13 percent

b. 7 percent

c. 3 percent

d. –7 percent

ANSWER: B

POINTS: 0 / 1

9. The consumer price index:

a. measures price changes of raw materials

b. adjusts all prices of goods and services for five-year periods

c. measures the cost of goods and services bought by a typical consumer

d. cannot measure price changes of intangible production such as services