macro chpt 22

If inflation is anticipated, some effects of inflation on the redistribution of income can be avoided.

true

The inflation rate measures the percentage increase in the price level from one year to the next.

true

The producer price index tracks the prices firms receive for goods and services at all stages of production.

true

Looking at the table above, real average hourly earnings in 2020 were

$10

Looking at the table above, real average hourly earnings in 2021 were

$5.63

The CPI in 1990 was 131, and the CPI in 2010 was 218. If you earned a salary of $40,000 in 1990, what would be a salary with equivalent purchasing power in 2010?

$66,565

The table above reports the nominal average hourly earnings in private industry and the consumer price index for 1965 and 2010. The real average hourly earnings for 1965 in 1982-1984 dollars equal

$8.28

Suppose an economy has only three goods and the typical family purchases the amounts given in the table above. If 2018 is the base year, then what is the CPI for 2022?

87.5

Which of the following would be a consequence of substitution bias in the CPI?

Businesses would overcompensate employees for inflation when giving cost of living raises.

Which measures the changes in the prices of a "market basket" of some 100 goods produced by typical manufacturers?

The Producer Price Index

If the CPI rises from 206.7 to 212.7 between two consecutive years, by how much has the cost of living changed between these two years?

The cost of living has increased by 2.9%.

Which of the following describes a situation in which the person is hurt by inflation?

a person paid a fixed income during an inflationary period

When actual inflation is less than expected inflation

borrowers lose and lenders gain.

The substitution bias in the consumer price index refers to the idea that consumers ________ the quantity of products they buy in response to price, and the CPI does not reflect this and ________ the cost of the market basket.

change; overestimates

When we want to measure wage inflation in the labor market, we use the:

employment cost index

Inflation implies that the level of all prices...

increase

The PPI is the

producer price index

The CPI in 2010 was 218, while the CPI in 1980 was 82. If you had $5,000 in 1980, its equivalent purchasing power in 2010 would be $10,850.

False

Which of the following is true about the consumer price index?

It assumes that consumers purchase the same amount of each product in the market basket each month.

The Consumer Price Index...

Measures the change in the cost of living for a typical US household

Assuming that the Consumer Price Index increases from 100 to 120...

More money would be needed to buy the same amount of goods, implying that the value of money drops

If the CPI changes from 125 to 120 between 2021 and 2022, what was the price change between 2021 and 2022?

Prices decreased by 4%.

Between 2021 and 2022, the CPI of a small nation rose from 182 to 185. If household incomes rose by 3% during that period of time, which of the following is true?

The purchasing power of household income rose between 2021 and 2022.

If consumers purchase fewer of those products that increase most in price and more of those products that decrease in price as compared to the CPI basket, then

changes in the CPI overstate the true rate of inflation.

Which of the following would be the best measure of the cost of living?

consumer price index

The table above reports the nominal average hourly earnings in private industry and the consumer price index for 1965 and 2010. The real average hourly earnings for 1965 in 2010 dollars equal

$18.14

Suppose your grandfather earned a salary of $12,000 in 1964. If the CPI is 31 in 1964 and 219 in 2022, then the value of your grandfather's salary in 2022 dollars is approximately

$84,775

Looking at the table above, real average hourly earnings were equal to ________ in 2021.

$9.52

Assuming that year 1 is the base year, calculate the price index for year 1 and for year 2.

100, 113

Monthly expenditures for a family of 4 in 2021 averaged $1,400. In 2022, the cost of the same purchases was $1,500. If 2021 is the base year, approximately what was the CPI in 2022?

107

Assume the market basket for the consumer price index has three products—Cokes, hamburgers, and CDs—with the following values in 2015 and 2022 for price and quantity: The Consumer Price Index for 2022 equals

121

Suppose that the data in the table above reflect the price levels in the economy. Given that data, we can say that the cost of living rose by ________ between 2021 and 2022?

13%

Assume the market basket for the consumer price index has two products—meat and potatoes—with the following values in 2015 and 2022 for price and quantity: The Consumer Price Index for 2022 equals

141

When Anders took out his first two-year membership with Maxima Gym in 2004, the fee was $540.00. He renewed his membership three times; in 2006 for $580.00, in 2008, for $600.00, and again in 2010, for $630.00. What is the overall rate of inflation for Anders' gym membership?

16.66%

Calculate the inflation rate for Henrique's baseball season between year 1 and 2.

18.5%

Consider the following values of the consumer price index for 2006, 2007, and 2008. The inflation rate for 2007 was equal to

2.5 percent

If the price index moves from 107 to 110, the rate of inflation is:

2.8%

Suppose that the data in the table above reflect price levels in the economy. What is the inflation rate between 2021 and 2022?

2.9%

Suppose that the data in the table above reflect the price levels in the economy. What is the inflation rate between 2021 and 2022?

20%

Suppose an economy has only three goods and the typical family purchases the amounts given in the table above. If 2018 is the base year, then what is the CPI for 2022?

208

Calculate the inflation that took place in 2012

23.8%

The table above reports the nominal average hourly earnings in private industry and the consumer price index for 1965 and 2010. The percentage change in real average earnings from 1965 to 2010 equals

24.6 percent

Consider the following values of the consumer price index for 2021 and 2022. The inflation rate for 2022 was equal to

3.9 percent

Looking at the table above, what is the rate of growth of the average price level from 2021 to 2022?

4.76%

Looking at the table above, what is the rate of growth of the average price level from 2020 to 2021?

5%

If the Consumer Price Index was 155 in one year and 165 in the next year, then the rate of inflation from one year to the next was approximately:

6.5%

Looking at the table above, what is the rate of growth of real average hourly earnings from 2021 to 2022?

7.8%

Which of the following describes the accuracy of the Consumer Price Index?

Changes in the CPI overstate the true rate of inflation.

If your nominal wage rises more slowly than the price level, we can say your real wage has ________ and the purchasing power of a dollar has ________.

fallen; fallen

If the CPI falls from 142 to 140 between two consecutive years, this implies that prices fell by 2% between those two years.

false

Nominal income is equal to real income if the CPI is less than 100.

false

The GDP deflator is the best measure that reflects the prices of goods and services purchased by the typical household.

false

The inflation rate measures the average prices of goods and services in the economy.

false

The problem associated with inflation is that as prices rise, consumers can no longer afford to buy as many goods and services, since nominal income usually does not increase with inflation.

false

There are no costs to inflation if it is fully anticipated.

false

To obtain real average hourly earnings, nominal average hourly earnings are multiplied by the CPI.

false

Looking at the table above, real wages ________ from 2020 to 2021, and real wages ________ from 2021 to 2022.

fell; rose

In 1986, an Apple IIe computer with 65 kilobytes of memory cost around $1,500. Today, a $1,500 iMac computer (also made by Apple) comes with 8 gigabytes of memory. This illustrates the potential for what kind of bias in CPI calculations?

increase in quality bias

The percent increase in the CPI from one year to the next is a measure of the

inflation rate

The rate of inflation in Zimbabwe rose in 2018 from 10.6% to 577.21% in 2020. What was the positive effect of this unexpected inflation on the residents of the country?

it helped debtors

The base period for CPI calculations is generally 1982-84. In 2005, 50% of households accessed the Internet through a broadband connection that would not have existed in the 1980s. This potential for bias in the CPI is referred to as ________ bias and results in ________.

new product; the CPI overestimating the true change in the cost of living

The "new product bias" in the consumer price index refers to the idea that

new products' prices often decrease after their initial introduction, and the CPI is adjusted infrequently and overestimates the cost to consumers.

The increase in quality bias in the consumer price index refers to the idea that price increases in the CPI reflect pure inflation, but ________ quality increases. This causes the CPI to ________ the cost of the market basket.

not; overstate

Which of the following is an example of one of the major categories in the overall CPI?

recreation

A consumer price index of 160 in 2016 with a base year of 1982-1984 would mean that the cost of the market basket

rose 60% from the cost of the market basket in the base year.

One of the reasons that a rise in the price of a fixed basket of goods over time tends to overstate the rise in a consumer's true cost of living, is:

substitution bias

The most widely used measure of inflation is based on which of the following price indices?

the consumer price index

The CPI is also referred to as

the cost−of−living index.

Currently, the base year for the CPI is the average of prices in the years 1982 to 1984.

true

Housing is the largest component of the U.S. CPI market basket.

true