Chapter 24 quiz macro

Ms. Lane borrowed $1,000 from her bank for one year at an interest rate of 10 percent. During that year, the price level went up by 15 percent. Which of the following statements is correct?

Ms. Lane's repayment will give the bank less purchasing power than it originally loaned her.

Social Security payments are indexed for inflation using the CPI. A recent newspaper editorial claimed that Social Security recipients are harmed by years of low inflation because they do not receive as large an increase in their payments as they do in years of high inflation. Which of the following statements is correct?

The newspaper editorial could be correct if the prices of the goods consumed by Social Security recipients change at a different rate than the prices of the goods in the market basket used to compute the CPI

Suppose the quality of beef changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be least severe?

The quality of beef deteriorates and beef becomes more expensive relative to other goods.

The inflation rate is calculated

by determining the percentage change in the price index from the preceding period.

The consumer price index is used to

monitor changes in the cost of living over time.

Reports on the current consumer price index are released every

month

Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn more than 400 times as much as Babe Ruth earned in 1931. However, prices have also risen since 1931. We can conclude that

one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931.

A COLA automatically raises the wage when

the consumer price index increases.

The CPI is a measure of the overall cost of

the goods and services purchased by a typical consumer.

What basket of goods and services is used to construct the CPI?

the goods and services that are typically bought by consumers as determined by government surveys