Chapter 6 Measuring The Cost of Living - Macro

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

11 percent

If the nominal interest rate is 7 percent and the inflation rate is 3 percent, then the real interest rate is

4 percent

In 1989, the CPI was 124.0. In 1990, it was 130.7. What was the rate of inflation over this period?

5.4 percent

Suppose the base year is changed in the table from 2014 to 2016. Also, suppose that the typical consumption basket was now determined in 2016 (now use the 2016 consumption basket). What is the new value of the CPI in 2015?

90.6

Under which of the following conditions would you prefer to be the borrower?

The nominal rate of interest is 20 percent, and the inflation rate is 25 percent

Under which of the following conditions would you prefer to be the lender?

The nominal rate of interest is 5 percent, and the inflation rate is 1 percent

Which of the following statements is correct?

The real interest rate is the nominal interest rate minus the inflation rate

Which of the following would likely cause the CPI to rise more than the GDP deflator?

an increase in the price of Hondas produced in Japan and sold in the United States

Inflation can be measured by all of the following except the

finished goods price index

If workers and firms agree on an increase in wages based on their expectations of inflation and inflation turns out to be more than they expected,

firms will gain at the expense of workers

The CPI will be most influenced by a 10 percent increase in the price of which of the following consumption categories?

housing

If borrowers and lenders agree on a nominal interest rate and inflation turns out to be less than they had expected,

lenders will gain at the expense of borrowers

The "basket" on which the CPI is based is composed of

products purchased by the typical consumer

Suppose your income rises from $19,000 to $31,000 while the CPI rises from 122 to 169. Your standard of living has likely

risen

If there is an increase in the price of apples that causes consumers to purchase fewer pounds of apples and more pounds of oranges, the CPI will suffer from

substitution bias

The table shows that the 2015 inflation rate is biased upward because of

substitution bias