Ch. 9 - Inflation

Suppose your income during Year X was $50,000, and the CPI was for Year X was 150 (base year = Z.) Back in Year Z your income was $30,000. Has your real income increased or decreased from Z to Year X? By how much?

Increased by $3,333.33

Suppose that you put $100,000 in cash in a coffee can and hid it in your apartment for one year, during which time inflation was 5%. What has happened to the purchasing power of that $100,000?

It purchasing power has shrunk by $5,000.

According to the Bureau of Labor Statistics' survey, which category represents the largest expense for the typical urban family?

Housing

Which of the following is the largest single component of the market basket used to compute the consumer price index (CPI)?

Housing.

The base year in the consumer price index (CPI) is:

a year chosen as a reference for prices in all other years.

In periods of high inflation

the purchasing power of money is decreasing.

Suppose a market basket of goods and services costs $400 in the base year and the consumer price index (CPI) is currently 125. This indicates the price of the market basket of goods is now:

$500.

Suppose hypothetically that the consumer price index (CPI) was 150 in 2001 and was 180 in 2002. What would be the inflation rate for this period?

20 percent.

If the consumer price index (CPI) in Year 1 was 200 and the CPI in Year 2 was 215, the rate of inflation was:

7.5 percent.

If the consumer price index (CPI) in Year X was 300 and the CPI in Year Y was 325, the rate of inflation for Year Y was:

8 percent.

Which of the following correctly defines inflation?

An increase in the general (average) price level of goods and services in the economy.

Which one of the following groups benefit from inflation?

Borrowers.

When the rate of inflation rises, the purchasing power of nominal income:

Decreases.

A reduction in the rate of inflation is called:

Disinflation.

The consumer price index (CPI):

Includes only goods and servcies bought by typical urban consumers.

Which of the following is correct?

People whose nominal incomes rise slower than the rate of inflation gain purchasing power.

Those hurt by inflation include:

Savers.

Union contracts with built-in-cost-of-living adjustments and home mortgages that vary with the rate of inflation are:

Steps that can be taken to decrease the adverse impacts of inflation.

Deflation means a decrease in:

The general price level of prices in the economy.

Losers from inflation include:

Those on fixed income and savers.