macro section 3

If the cost of a market basket is $200 in Year 1 and $230 in Year 2, the price index for Year 2 with a Year 1 base is

e. 115

Which one of the following price indices is commonly used to measure the cost of living

e. consumer price index

Over the last year, Eli had been working very hard and his employer has taken notice by giving him a 6% raise in his salary. During this last year, overall prices in the economy increased by 4%. Given this information, Eli's real wage has

e. increased by 2%

The purpose if indexing social security payments to the CPI is to

e. maintain the purchasing power of retirees

When hyperinflation forces Pedro to change the price stickers on the books in his bookstore very frequently to keep up with the aggregate price level economists say that Pedro s experiencing a

e. menu cost

High rates of inflation often result in people spending inordinate amounts of time trying to make transactions and finding ways to keep the real value of their money from decreasing. This is an example of ___ costs

e. shoe-leather

When hyperinflation forces Emily to visit her bank frequently to keep her cash holdings to a minimum economist say that Emily is experiencing a

e. shoe-leather cost

If the actual inflation rate is less than the expected inflation rate, them

e. the lenders gain and the borrowers lose

Which of the following is true?

e. unexpected inflation benefits borrowers and hurts lenders

if the consumer price index changes from 120 to 125 between December 2007 and December 2008, the

a. 4.2%

If the cost of a market is $150 in Year 1 and $200 in Year 2, the price index for Year 1 with a Year 2 base is

a. 75

inflation is when there is

a. a rising aggregate price level

In periods of unexpected inflation

a. borrowers benefit since they repay their loans in dollars with lower real value.

The consumer price index reflects the

a. changes in the prices of goods and services typically purchased by consumers

Unit-of-cost of inflation are the

a. costs associated with money being a less reliable unit of measurement

A process that brings the inflation rate down, is called

a. disinflation

Which of the following represents the best scenario for a bank lending its money to a customer

a. fixed interest of 8% with 1% inflation

An increase in the price level that is extremely rapid (say 400% per year) is called

a. hyperinflation

During rapid price inflation, firms must frequently change prices. The cost of changing prices is known as the

a. menu cost

Which of the following statistics is used to measure changes in the prices that firms pay for goods and services

a. producer price index

Unanticipated inflation

a. reduces the value of money

The inflation or deflation rate is

a. the change in a price index divided by the initial value of the index

When there is deflation in the economy

a. the general price level falls

Inflation can be measured by

a. the percentage change in the CPI

The threat of future inflation

a.makes people reluctant to loan money for long periods

Suppose the real interest rate is 2.1% and the nominal interest rate is 5.4%. Then the expected inflation rate is

b. 3.3%

Suppose that the nominal rate of interest is 7 % and the expected inflation rate is 3% then the real rate of interest is equal to

b. 4%

Deflation is when there is

b. a decreasing aggregate price level

The ___ is the most widely used measure of inflation in the United States

b. consumer price index

Shoe-leather costs refer to the

b. increased cost of transaction due to inflation

Inflation doesn't reduce purchasing power if

b. it causes an increase in nominal wages equivalent to the rate of inflation

When inflation rises quickly

b. lenders will be hurt and borrowers will benefit

Alex expects the inflation rate to be 4%. If Alex borrows money at a nominal interest rate of 5%, his real interest rate is

b. positive and less than the nominal interest rate

If money income remains the same, while the average price level doubles, then

b. real income will fall

Currently banks are issuing personal loans at an interest rate of 9%. If expected inflation is supposed to be 3% then

b. real interest rate is 6% and the nominal interest rate is 9%

The invention of ATM machines reduced

b. shoe-leather costs of inflation

Menu costs are

b. the real cost of changing listed prices

You read in the newspaper that the CPI in 2008 was 120, you will conclude that a typical marker basket in 2008 would have cost

c. 20 percent more than the same market basket purchased in the base year

If the CPI is 120 in Year 1 and 150 in Year 2, the the rate of inflation from Year 1 to Year 2 is ___

c. 25%

Menu costs of inflation are the

c. costs associated with businesses changing prices

Deflation is a(n)

c. decrease in the average level of prices

Unanticipated inflation

c. helps borrowers and hurts lenders

Suppose that a bank wished to make 5% rate of return on a one-year loan but expects that inflation over the course of the loan will be roughly 3%. Which of the following is true?

c. if the bank charges 8% and the inflation rate is more than 3%, then the bank will have earned a larger rate of return than expected

Increases in the average level of prices is called

c. inflation

You have gone to the bank to borrow money for one year. The nominal rate is 7.5%. The real rate of interest is 4%, This rate of inflation hurt the ___ because the actual rate of inflation was ___ than the anticipated rate of inflation

c. lender, higher

Unit-of-account- costs refer to the problems associated with high inflation rates that

c. makes money a less reliable unit of measurement

Menu costs refer to the increased cost:

c. of changing listed prices

Which of the following is a LIKELY response to inflation

c. people tend to make more transactions

Unanticipated inflation

c. reduces the value of the debt owed by borrowers

Unit-of-account costs refer

c. the loss of reliability of money as a relative unit of measurement

The aggregate price level is

c. the overall level of prices in the economy

The nominal interest rate equals

c. the real interest rate plus the expected rate of inflation

The costs arising from the way inflation makes money a less reliable unit of measurement are known as

c. unit-of-account cost

Which of the following annual rates of inflation would most likely be called hyperinflation?

d. 2000%

Suppose that a country has a progressive tax code, where taxable income is calculated in nominal terms but the schedule of income tax rates us NOT indexed to inflation. An individual whose income keeps up with inflation will find that, overtime, she will pay

d. a higher percentage of her income in taxes over time

Which of the following is true concerning interest rates?

d. the real interest can be zero, positive, or negative