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1. To ensure that a nominal payment represents a constant level of purchasing power over time, one should: a) add a price index to it. b) subtract a price index from it. c) divide it by a price index. d) increase it by a percentage equal to the rate of inflation for that year. 2. Suppose that the CPI does indeed overstate the rate of inflation. When the CPI increases by 5% and household incomes increase by 5%, we should conclude that the real incomes of households: a) increased. b) stayed constant. c) decreased. d) increased more slowly than inflation. 3. Making more frequent, but smaller cash withdrawals from banks the inflation losses from holding cash and _the shoe leather costs of inflation. a) increases; increases b) increases; reduces c) reduces; has no impact on d) reduces; increases 4. The "true" costs of inflation to an economy include all of the following EXCEPT: a) shoe-leather costs. b) higher relative prices. c) noise in the price system. d) unexpected redistribution of wealth 5. If the real interest rate is 6% and the inflation rate is 12%, then the nominal interest rate equals a) 29%. b) 0.5%. c) 6% d) 36%