Chapter Quiz (Ch 11)

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

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

e. an increase in the price of domestically produced fighter planes sold exclusively to Israel

Inflation can be measured by all of the following except the

Finished goods price index

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

Inflation rate in Year 2 = CPI in Year 2 - CPI in Year 1 X 100CPI in Year 1. 5.4

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

Housing

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

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

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,

a. firms will gain at the expense of workers.

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

a. substitution bias.

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

b. 4 percent.

Which of the following statements is correct?

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

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

b. lenders will gain at the expense of borrowers.

What are the values of the CPI in 2017, 2018, and 2019, respectively?

c. 100, 113.3, 125

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

c. 11 percent.

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

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

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

c. products purchased by the typical consumer.