Quiz 11 and 13

If the nominal interest rate is 6 % and the rate of inflation is 9%, the n the real interest rate is

-3 %

If the consumer price index was a 100 in the base year and 107 in the following year, the inflation rate is

7 percent.. 7/100 x 100

The steps involved in calculating the consumer price index, in order, are as follows:

Fix the basket, find the prices, compute the baskets cost, choose a base year, and compute the index.

To calculate the CPI, the Bureau of Labor Statistics uses...

The prices of some consumer goods

If Proctor Gamble sells a bond it is

borrowing directly from the public.

The CPI is a measure of the overall cost of...

goods and services bought by a typical consumer.

Compared to long term bonds, other things the same, short term bonds generally have

less risk and pay lower interest.

People who buy stock in a corporate such as General Electric become

part owners of General Electric, so the benefits of holding the stock depend on General Electric's profits.

stocks frequently have negative returns in the _________; therefore your investment horizon when considering investing in stock should be_________ term.

short, long

A low price earnings ratio indicates that either the stock is

undervalued or people are relatively pessimistic about the corporations prospects.

Which of the following statements is correct?

A general, persistant, decline in stock prices may signal that the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits.

Assuming that the bonds below have the same term and principal and that the state or local government which issues the municipal bond has a good credit rating, which list has bonds ordered from the one that pays the most interest to the one that pays the least interest?

Corporate bond, US government bond, municipal bond

The consumer price index (CPI) and the GDP deflator are two alternative measure of the overall price level. Which of the following statements about the two measures it correct?

The CPI reflects a fixed basket of goods and services; the GDP deflator reflects current production of goods and services.