QUESTION: 1397

A client tells you that he currently earns $100,000 per year and is comfortable with his lifestyle at that income level. He says he is planning on retiring in 5 years. If inflation averages 8% over the next 5 years, approximately what income level will this client require to maintain his current lifestyle?

$147,000
Not enough information
$169,000
$122,000
$140,000

Answer(s): B

Explanation:

The calculation is as follows: (1.08)^(5)*100000=$146,933

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QUESTION: 1398

Use the table below to choose the correct answer.

Time Period Actual Inflation
14 percent
24 percent
36 percent
48 percent

According to the adaptive expectations hypothesis, at the beginning of period 3, decision makers would expect inflation during period 3 to be ________.

6 percent
5 percent
8 percent
4 percent

Answer(s): D

Explanation:

Under the adaptive expectations hypothesis economic agents base their future expectations on actual outcomes observed during recent periods. Thus, the most recent periods suggest an inflation rate of 4 percent will persist in the future.

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QUESTION: 1399

Congress passes a law requiring the government to pay certain debts of companies that have declared bankruptcy. Which of the following terms most accurately describes this program?

supply-side
automatic stabilizer
expansionary fiscal policy
moral hazard
none of these answers is correct
monetary policy

Answer(s): B

Explanation:

An automatic stabilizer is anything that would decrease the government budget surplus during slow economies and increase the surplus during strong economic periods. During slow economic periods, bankruptcies are likely to rise, and by paying a portion of the defunct firms' debts, the government is injecting demand into the economy. This should be distinguished from an expansionary fiscal policy, because the program is not designed to expand national income, but to stabilize a slowdown without the need for further government action.

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QUESTION: 1400

The "extra" money you take on a trip in case your car breaks down is an example of the

transactions demand for money.
inflationary demand for money.
restrictive demand for money.
speculative demand for money.
precautionary demand for money.

Answer(s): E

Explanation:

Precautionary demand for money is defined as a demand for cash balances in case of unforeseen circumstances which require money.

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QUESTION: 1397

Explanation:

QUESTION: 1398

Explanation:

QUESTION: 1399

Explanation:

QUESTION: 1400

Explanation: