Eco Exam 2

If 2010 is the base year, then the inflation rate in 2015 equals

CPI in 2015 - CPI in 2014/CPI in 2014 *100

All else equal, if there are diminishing returns and constant returns to scale, then what happens to productivity if capital and labor both increase but capital increases by more?

Productivity will definitely rise.

When constructing the consumer price index, the Bureau of Labor Statistics does not do which of the following?

Survey sellers to determine what the typical consumer buys.

The level of real GDP person

and the growth rate of real GDP per person vary widely across countries.

Productivity

explains most of the differences in the standard of living across countries.

One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI

fails to account for the introduction of new goods.

For any given year, the CPI is the price of the basket of goods and services in the

given year divided by the price of the basket in the base year, then multiplied by 100.

The nominal interest rate tells you

how fast the number of dollars in your bank account rises over time.

The real interest rate tells you

how fast the purchasing power of your bank account rises over time.

Government corruption

impedes the coordinating power of markets and discourages investment.

In the long run, a higher saving rate

increases the level of productivity.

Human capital

is an input in the production of goods and services.

By not taking into account the possibility of consumer substitution, the CPI

overstates the cost of living.

Investment in

physical capital, like investment in human capital, has an opportunity cost.

Productivity is the amount of goods and services

produced for each hour of a worker's time. It is linked to a nation's economic policies.

In calculating the CPI, a fixed basket of goods and services is used. The quantities of the goods and services in the fixed basket are determined by

surveying consumers.

An understanding of the best ways to produce goods and services is called

technology

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because

the CPI better reflects the goods and services bought by consumers.

An important difference between the GDP deflator and the consumer price index is that

the GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of goods and services bought by consumers

A COLA automatically raises the wage when

the consumer price index increases.

Economists use the term inflation to describe a situation in which

the economy's overall price level is rising

The consumer price index is used to

turn dollar figures into meaningful measures of purchasing power.