1. The real interest rate is the actual interest rate that would prevail in a hypothetical world of

a. constant inflation

b. zero inflation

c. constant real GDP

d. constant interest rates

2. If the nominal interest rate is 10%, the expected inflation rate is 4%, and the marginal income tax rate is 30%, the after-tax real interest rate is

a. 3%

b. 6%

c. - 1%

d. none of these

3. The Michigan Survey of inflation expectations is based on a

a. survey of professional economists

b. survey of households

c. survey of financial market participants

d. large-scale macroeconomic model

4. In the short run, a restrictive monetary policy results in __________ in nominal interest rates, __________ in expected inflation, and __________ in real interest rates.

a. increases, increases, cannot determine effect

b. decreases, increases, decreases

c. increases, decreases, increases

d. decreases, decreases, cannot determine effect

5. Ex ante real interest rates are important in determining __________; ex post real interest rates are important in determining ___________ .

a. redistribution of income, international capital flows

b. capital investment, redistribution of income

c. capital investment, time preference

d. none of the above

ANSWER KEY - 1b; 2a; 3b; 4c; 5b