Tackle the Test: Free-Response Questions

145

  1. Question

    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
    In the following examples: (i) indicate whether inflation imposes a net cost on the economy; (ii) explain your answer; and (iii) identify the type of net cost involved if there is one.

    Rubric for FRQ 1 (11 points)

    1 point: There is a net cost to the economy.

    1 point: There is an increase in the cost of financial transactions imposed by inflation.

    1 point: This type of cost is called a shoe-leather cost.

    1 point: There is a net cost to the economy.

    1 point: Lanwei’s forgone output is a cost to the economy.

    1 point: This type of cost is called a unit-of-account cost.

    1 point: There is no net cost to the economy.

    1 point: Hector gains and the bank loses because the money Hector pays back is worth less than expected.

    1 point: There is a net cost to the economy.

    1 point: Cozy Cottages must reprint and resend the expensive brochure when inflation causes rental prices to rise.

    1 point: This type of cost is called a menu cost.

  2. Question

    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
    You borrow $1,000 for one year at 5% interest to buy a couch. Although you did not anticipate any inflation, there is unexpected inflation of 5% over the life of your loan.