chapter 7 macro

If last year a pineapple cost​ $2, and this year it costs​ $4, there has been a​ ________ percent rise in the price of the pineapple over a​ one-year period.

100

Suppose that in​ 2020, a typical U.S. student attending a​ state-supported college bought 8 textbooks at a price of $110 per book and enrolled in 28 credit hours of coursework at a price of $380 per credit hour. In​ 2021, the typical student continued to purchase 8 textbooks and enroll in 28 credit​ hours, but the price of a textbook rose to $130 per​ book, and the tuition price increased to $430 per credit hour. The base year for computing a "student price​ index" using this information is 2020. The value of the student price index in 2020 is The value of the student price index in 2021 is

100 113.54

This year is the base year for computing the​ nation's price index. The current nominal interest rate is 6.9 ​percent, and real interest rate is 5.6 percent. What is the anticipated value of next​ year's price​ index? The anticipated value of next​ year's price index is

101.3

Jim's favorite breakfast is two​ eggs, 1/5 lb. of​ bacon, 1/7 lb. of white​ toast, 1/6 can​ (16 ounce​ can) of frozen concentrate orange​ juice, and 1 lb. of grapefruit. The following table contains 1991 and 2001 prices for these five items. Using 1991 as the base​ year, compute the price index for​ Jim's breakfast for 2001.

107.5

Calculate the price index for 2021​, using the price index​ formula, assume 2019 is the base year.

107.7

Between 2020 and 2021 in a particular​ nation, the value of the consumer price index—for which the base year is 2017—rose by 7.1 ​percent, to a value of 140 in 2021. What was the value of the price index in​ 2020?

130.72

Consider the​ following: __________________________________________ Price index of current year 86 Price index of next year​ (anticipated) 96 Current nominal interest rate 28.67​% ____________________________________________ Calculate the real interest rate?

17.04

Consider an economy​ where: _________________________________ The real rate of interest 4.33​% The nominal rate of interest 7.29​% _________________________________ Calculate the anticipated rate of inflation.

2.96

The cost of a​ nation's market basket in the base year is $1,920​, and the current​ year's price index equals 160. What is the cost of the market basket in the current​ year? The cost of the market basket in the current year is ​$

3,072

Suppose, the current year is the base year for the price index​ calculation, and __________________________________ Nominal interest rate 6.58​% Expected inflation rate 3.55​% __________________________________ Calculate the expected real interest rate. What is the anticipated value of the price index next​ year?

3.03 103.6

This​ year's value of the​ economy's price index is 101​, and people anticipate that next​ year's value will be 103. The current nominal interest rate is 5.6 percent. What is the real interest​ rate? The real interest rate is

3.6

Bill lends Joann​ $1,000 for a year at a nominal interest rate of 7​%. If both Bill and Joann expect the inflation rate to be 3​% next​ year, then the real rate of interest is

4%

Once we pick a market basket of​ goods, we can construct a price index that compares the cost of that market basket today with the cost of the same market basket in a The _____ Index is the most often used price index in the United States The ______ measures what is happening to the average price level of all​ new, domestically produced final goods and services in our economy. The ______ Index uses annually updated weights from consumer spending surveys to measure average prices faced by consumers.

Base Consumer Price GDP Deflator Personal Consumption Expenditure

In percentage​ terms, the largest positive change in business activity in the United States since 1880 occurred during the 1990s.

False

Whenever inflation rates are overestimated for the life of a​ loan, creditors lose and debtors gain. If you invest​ $1,000 in a savings account that pays 2 percent​ annually, your​ $1,000 investment will have gained the most purchasing power in one year if the inflation rate is

False 1 percent.

In the base​ year, the price index will always have a value of zero. The​ ________ is a price index measuring the changes in prices of all new goods and services produced in the economy.

False GDP deflator

All of the following are key price indexes except the

KLP

Which of these price indices shows the greatest price​ volatility?

PPI

Which price index resulted in the highest and most volatile measure of​ inflation?

PPI

Which of the following is​ correct?

Real rate of interest​ = (Nominal rate of interest −Anticipated rate of​ inflation)

Which of the following statements is​ true?

Since World War​ II, the consumer price index has continued to rise.

The table on the right shows four major price indices of the US​ economy: the Consumer Price Index​ (CPI), the Producer Price Index​ (PPI), the Personal Consumption Expenditure Index​ (PCE) and the GDP deflator. All four indices are used to measure inflation. Based on the data from the four indices in the​ table, which price index suggests the highest rate of inflation between the years 1997 and 1998​?

The CPI indicating the highest inflation rate (1.54​%).

The table on the right shows four major price indices of the US​ economy: the Consumer Price Index​ (CPI), the Producer Price Index​ (PPI), the Personal Consumption Expenditure Index​ (PCE) and the GDP deflator. All four indices are used to measure inflation. Based on the data from the four indices in the​ table, which price index suggests the highest rate of inflation between the years 2000 and 2003​? What was the corresponding inflation rate suggested by this​ index?

The CPI indicating the highest inflation rate (6.83​%).

The table on the right shows four major price indices of the US​ economy: the Consumer Price Index​ (CPI), the Producer Price Index​ (PPI), the Personal Consumption Expenditure Index​ (PCE) and the GDP deflator. All four indices are used to measure inflation? Based on the data from the four indices in the​ table, which price index suggests the highest rate of inflation between the years 2000 and 2004​, and between 1997 and 1998. What were the corresponding rates suggested by these​ indices?

The PPI indicates the highest inflation rate at 10.50​% for 2000-2004​; the CPI indicates the highest inflation rate of 1.54​% for 1997​-1998.

The table on the right shows four major price indices of the US​ economy: the Consumer Price Index​ (CPI), the Producer Price Index​ (PPI), the Personal Consumption Expenditure Index​ (PCE) and the GDP deflator. All four indices are used to measure inflation. Based on the data from the four indices in the​ table, which price index suggests the highest rate of inflation between the years 2000 and​ 2004, and between 1998 and 1999. What were the corresponding rates suggested by these​ indices?

The PPI indicating the highest inflation rate of​ 10.5% for​ 2000-2004; the CPI indicating the highest inflation rate of​ 2.19% for​ 1998-1999.

Which of the following statements is true concerning the historical picture of business activity in the United​ States?

The frequency and size of fluctuations around the trend has decreased since World War II.

Leading indicators are events that have been found to occur before changes in business activities.

True

The ups and downs in economywide business activity are called____________ ,which consist of expansions and contractions in overall business activity. The lowest point of a contraction is called the _________. The highest point of an expansion is called the ___________. __________ is a downturn in business activity for some length of time. One possible explanation for business fluctuations relates to ___________ such as​ wars, dramatic increases in the prices of raw​ materials, and​ earthquakes, floods, and droughts.

business fluctuations trough; peak A recession external shocks

Consider the table to the right. Suppose that the 2022 price of corn were to rise to $8.25 per​ bushel, but that the price of a digital device were to fall to $285. The quantities of the two commodities remain the​ same, however. How would these changes affect the value of the 2022 price​ index? Holding the quantities of the two commodities the​ same, a rise in the 2022 price of corn to $8.25 and a fall in the price of a digital device to $285 would cause the value of the 2022 price index to

fall to 107.31

Suppose that in 2022 there is a sudden unanticipated burst of inflation. Consider the situations faced by the following individuals and determine who gains and who loses due to this inflation. A homeowner whose wages keep pace with inflation in 2022 and makes fixed monthly mortgage payments to a savings bank. As a result of​ this, the homeowner ________ and the savings bank __________ An apartment landlord who has guaranteed to his tenants that their monthly rent payments during 2022 will be the same as they were during 2021 _____ The tenants who make fixed monthly rent payments ____________ A banker who made a fixed rate auto loan ________ but the auto buyer who will repay the loan at a fixed rate of interest during ___________ A retired individual who earns a pension with fixed monthly payments from her past employer during 2022 __________ but the employer who pays the fixed monthly payment to her ____________

gains; loses loses; gains loses; gains loses; gains

Whenever inflation is ___________ than​ anticipated, creditors lose and debtors gain. Whenever the rate of inflation is ________ than​ anticipated, creditors gain and debtors lose. Holders of cash lose during periods of inflation because the ____________ of their cash depreciates at the rate of inflation. The ___________ interest rate is the market rate of interest observed in contracts expressed in​ today's dollars, whereas the _____________ interest rate equals the ___________ interest rate minus the _________ rate of inflation.

greater; less purchasing power nominal, real, nominal, anticipated

Consider an economy with only two groups of​ people: Wage earners and Goods sellers. If the price level increases by​ 20% while the nominal wages remains the​ same,

income will be redistributed from wage earners to goods sellers.

Typically during a recession

incomes fall and unemployment rises.

People anticipate the inflation rate to be​ 8%. Banks are making loans at a​ 12% interest rate.​ Therefore,

the real rate of interest is​ 4% and the nominal rate is​ 12%.

Business fluctuations refer to

the ups and downs in overall business activity measured by changes in national​ income, employment and the price level.

A price index is computed as

​(cost of market basket today÷cost of market basket in base year)×100.

The nominal value of anything is its price expressed in​ ________, and the real value of anything is its value expressed in​ ________.

​today's dollars; purchasing power