Econ202

If the nominal interest rate is 6 percent and the rate of inflation is 10 percent, then the real interest rate is A. -4 percent. B. 16 percent. C. -16 percent. D. 4 percent.

a

Sophia puts money in the bank and earns a 5 percent nominal interest rate. If the inflation rate is 2 percent, then after one year, A. Sophia will have 5 percent more money, which will purchase 3 percent more goods. B. Sophia will have 3 percent more money, which will purchase 7 percent more goods. C. Sophia will have 3 percent more money, which will purchase 5 percent more goods. D. Sophia will have 5 percent more money, which will purchase 7 percent more goods.

a

Suppose the price of a gallon of ice cream rises from $4 to $5 and the price of a can of coffee rises from $2 to $2.50. If the CPI rises from 150 to 177, then people likely will buy A. less ice cream and less coffee. B. more ice cream and more coffee. C. less ice cream and more coffee. D. more ice cream and less coffee.

a

The CPI is a measure of the overall cost of the goods and services bought by A. a typical consumer. B. the government. C. a typical firm. D. All of the above are correct.

a

The term inflation is used to describe a situation in which A. the overall level of prices in the economy is increasing. B. stock-market prices are rising. C. the economy is growing rapidly. D. incomes in the economy are increasing.

a

When the consumer price index rises, the typical family A. has to spend more dollars to maintain the same standard of living. B. can offset the effects of rising prices by saving more. C. can spend fewer dollars to maintain the same standard of living. D. finds that its standard of living is not affected.

a

The CPI differs from the GDP deflator in that A. substitution bias is not a problem with the CPI, but it is a problem with the GDP deflator. B. increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the CPI but not in the GDP deflator. C. the CPI is a price index, while the GDP deflator is an inflation index. D. increases in the prices of domestically produced goods that are sold to the U.S. government show up in the CPI but not in the GDP deflator.

b

The price index was 220 in one year and 238.2 in the next year. What was the inflation rate? A. 4.8 percent B. 8.3 percent C. 38.2 percent D. 108.3 percent

b

When computing the cost of the basket of goods and services purchased by a typical consumer, which of the following changes from year to year? A. the quantities of the goods and services purchased B. the prices of the goods and services C. the goods and services making up the basket D. All of the above are correct.

b

Which of the following statements is correct? A. Compared to the consumer price index (CPI), the GDP deflator is the more common gauge of inflation. B. The CPI can be used to compare dollar figures from different points in time. C. The GDP deflator better reflects the goods and services bought by consumers than does the CPI. D. The percentage change in the CPI is a measure of the inflation rate, but the percentage change in the GDP deflator is not a measure of the inflation rate.

b

Henri earned a salary of $50,000 in 2001 and $70,000 in 2006. The consumer price index was 177 in 2001 and 265.5 in 2006. Henri's 2006 salary in 2001 dollars is A. $105,000.00. B. $61,950.00 C. $46,666.67. D. $35,000.00.

c

If the price of Italian shoes imported into the United States increases, then A. both the GDP deflator and the consumer price index will increase. B. neither the GDP deflator nor the consumer price index will increase. C. the consumer price index will increase, but the GDP deflator will not increase. D. the GDP deflator will increase, but the consumer price index will not increase.

c

In 1969, Malcolm bought a Pontiac Firebird for $2,500. If the price index was 36.7 in 1969 and the price index was 235 in 2013, then what is the price of the Firebird in 2013 dollars? A. $13,508.17 B. $4,609.57 C. $16,008.17 D. $4,957.51

c

One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called A. relative bias. B. unmeasured quality change. C. substitution bias. D. price-change neglect.

c

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $50; in 2014, the basket's cost was $51; and in 2016, the basket's cost was $52. The value of the CPI in 2014 was A. 104.0. B. 98.0. C. 102.0. D. 151.0.

c

Table 24-3 year $pork $corn 2012 $20 $12 2013 $25 $18 The table below pertains to Iowan, an economy in which the typical consumer's basket consists of 4 pounds of pork and 3 bushels of corn. Refer to Table 24-3. If 2012 is the base year, then the CPI for 2013 was A. 100.0. B. 154.0. C. 132.8. D. 116.0.

c

The economy's inflation rate is the A. change in the gross domestic product from the previous period. B. change in the price level from the previous period. C. percentage change in the price level from the previous period. D. price level in the current period.

c

The nominal interest rate tells you A. how fast the purchasing power of your bank account rises over time. B. the number of dollars in your bank account today. C. how fast the number of dollars in your bank account rises over time. D. the purchasing power of your bank account today.

c

When the quality of a good deteriorates while its price remains the same, the purchasing power of the dollar A. decreases, so the CPI overstates the change in the cost of living if the quality change is not accounted for. B. increases, so the CPI understates the change in the cost of living if the quality change is not accounted for. C. increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for. D. decreases, so the CPI understates the change in the cost of living if the quality change is not accounted for.

d