quiz 11

If the nominal interest rate is 8 percent and the rate of inflation is 3 percent, then the real interest rate is

5 percent

In regarding CPI,

The CPI can be used to compare dollar figures from different points in time.

Which of the following statements about real and nominal interest rates is correct?

When the inflation rate is positive, the nominal interest rate is necessarily greater than the real interest rate.

When looking at a graph of nominal and real interest rates you notice the graph for nominal rates and the graph for real rates cross each other many times. From this you conclude

consumer prices sometimes rose and sometimes fell in the time frame represented on the graph.

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 measure all changes in the quality of goods.

When the consumer price index rises, the typical family

has to spend more dollars to maintain the same standard of living

Every unit of good x that is produced in the United States is exported to other countries. An increase in the price of good x shows up

in the GDP deflator, but not in the consumer price index.

The economy's inflation rate is the

percentage change in the price level from the previous period

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

Suppose prices of personal computers fall significantly and consumers respond by buying more personal computers. The consumer price index

understates this price decrease due to the substitution bias.