econ 101 ch 9

If the price index moves from 105 to 109, the rate of inflation is:

3.7%

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

Employment Cost Index

Which of the following is the best reason why the arrival of new goods creates problems with respect to the accuracy of measuring inflation?

If the price index leaves out new goods, it overlooks one of the ways in which the cost of living is improving.

Which of the following statements is true about inflation?

Inflation redistributes purchasing power in the economy.

Which of the following is true about core inflation?

It is a measure of inflation that excludes the rate of price increases for certain volatile components in price indexes

Which of the following is true about the GDP deflator?

It is a price index that is based on all the GDP components.

Why would employees would want to have their wages indexed to the Consumer Price Index (CPI)?

It would maintain their purchasing power during inflationary periods.

All of the following statements are true, except: When saving for retirement, people need to consider what their money will really buy several decades in the future. Uncertainty about future inflation makes it hard to predict the value of some financial assets in the future. Moderate or high Inflation rarely poses substantial long-term planning problems for businesses. It's very hard to predict the rate of future inflation.

Moderate or high Inflation rarely poses substantial long-term planning problems for businesses.

The inflation rate is most commonly derived from which of the following macroeconomics measures

The Consumer Price Index

John borrows $50,000 from Bank of Yerevania at a fixed interest rate of 5%. If inflation is 5% at the time the loan is made, then:

The real interest rate on the loan is zero.

Loans that have _________________ have interest rates that vary with the rate of inflation.

adjustable rates

Which of the following best describes hyperinflation?

an outburst of high inflation

If the federal minimum wage grows at a slower rate than inflation, the real minimum wage ______________.

decreases

Government statisticians at the U.S. Bureau of Labor Statistics calculate the CPI based on the prices in a _______________ that represents the purchases of __________________

fixed basket of goods and services; the average household of 4

The components with the highest weights in the Consumer Price Index are ___________

housing, and food and beverage

If inflation increases unexpectedly, then:

lenders tend to lose.

Another term for deflation is ____________

negative inflation

Substitution behavior by households causes the inflation rate to be _____________________

overstated

If the price index leaves out new goods, it overlooks one of the ways in which the cost of living is improving and ______________ the true cost of living

overstates

Inflation is a general and ongoing _____________ in the _______________ in an entire economy.

rise; level of prices

The inflation rate for a given year can be found by _________

taking the percentage change in the Consumer Price Index (CPI) from the previous year to the given year in question

Which of the following is true for a homeowner with a 30-year fixed nominal interest rate mortgage? (Hint: With a fixed nominal interest rate, how does the real interest rate change with inflation?)

the homeowner will benefit from rising inflation

In order to maintain purchasing power for those wage earners, the federal minimum wage rate should keep up with _________________

the rate of inflation

If someone retires with a pension, what effect does inflation have on their income?

they will lose buying power because their income will not be worth as much

Which of the following best defines indexing?

when prices, wages, or the interest rate is adjusted automatically with inflation