Inflation premium

Which of the following statements is true?

a Inflation premium” is the amount that the interest rate is raised to cover the effects of anticipated inflation. The “inflation premium” is the expected rate of inflation.
b (Ex-ante) “Real interest rate” is defined as the nominal interest rate minus the “inflation premium”.
c In the past, deflation has been as much a problem as inflation.
d All of the above.
e Only a) and b)

Question 38 (1 point)

Which of the following statements is true?

a The Great Depression of the 1930s was a period of increasing prices and wages.
b When there is deflation, many people may decide to postpone purchases, since they believe that by waiting they could save good money. The problem is that, by postponing purchases, people reduce today’s sales, production, and employment, which aggravates the recession and may cause even more deflation, as firms may be forced to slash prices to entice people to buy their goods.
c Cost-push inflation (resource prices rise unexpectedly) can reduce output, employment and real income.
d All of the above.
e Only b) and c)

Question 39 (1 point)

Which of the following statements is true?

a Mild inflation may be a healthy by-product of a prosperous economy (as an economy grows, resources become scarce, and the cost of production and prices may increase some “more”) or it may have an undesirable impact on real income (income’s loss of purchasing power).
b Hyperinflation is extraordinarily high inflation (50% monthly inflation rate or more).
c Hyperinflation can devastate an economy. Prices are increasing so fast that firms don’t know what to charge, consumers don’t know what to pay, and money becomes worthless.
d All of the above.
e Only a) and b)

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