a. 0.75% b. 1% c. 7% d. -1%
"Money GDP growth" = "real GDP growth" plus inflation; 3 + 4 =7, right answer is c., 7%.
2. If the money interest rate is 9% and inflation is 4%, the real interest rate is
a. 13% b. 5% c. 1.8% d. -5%
"Money interest rate" = "real interest rate" plus "inflation rate"; so the real interest rate is the money interest rate minus the inflation rate (that's the definition). 9 - 4 = 5, right answer is b., 5%.
3. If the price level increases more than expected, who is most likely to gain?
a. People who lent money
b. people who borrowed money at fixed interest rates
c. people who receive fixed money pensions
d. people who borrowed money at variable interest rates.
If the price level goes up more than expected, money received in the future will buy less real goods than expected. So the people most likely to gain are those who will have to make money payments that were fixed in money amounts earlier, but now represent purchasing power over fewer real goods and services than expected. Of the groups above, the only one in that situation are those who borrowed money at fixed interest rates (so their money repayments are fixed, but are actually going to cost less in real terms). So right answer is b. Groups a. and c. are likely to lose [because they are likely to receive less in real goods and services than they expected, the money they receive will buy less than they expected]. Group d. will probably neither gain nor lose, because if they borrowed money at variable interest rates, money interest rates are likely to increase to offset the unanticipated inflation, i.e. the unexpected change in the price level, so the payments they make will likely not change in real terms (they will increase in money terms).
4. In symbols, GDP [Y] is equivalent to :
a. C + I + G
b. C + I + G + (X - M)
c. T + S + G