Ch. 24 Macro

Corey deposits $1,000 in a savings account that pays an annual interest rate of 5 percent. Over the course of a year, the inflation rate is 1.7 percent. At the end of the year, Corey has

$50 more in his account, and his purchasing power has increased by $33.

worker received $5 for a daily wage in 1930. What is the value of that wage today if the CPI was 17 in 1930 and is 230 today?

$67.65

A dollar figure from 1908 is converted into 2008 dollars by dividing the 2008 price level by the 1908 price level, then multiplying by the 1908 dollar figure.

True

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If inflation was 2 percent during the year the money was deposited, then Bob's purchasing power has increased by 3 percent.

True

By keeping the basket of goods and services the same when computing the CPI, the Bureau of Labor Statistics isolates the effects of price changes from the effect of any quantity changes that might be occurring at the same time.

True

Consumer price index = × 100.

True

In the U.S., when the price of oil rises, the CPI rises by much more than does the GDP deflator.

True

A decrease in the price of large tractors imported into the United States from Russia

leaves both the GDP deflator and the consumer price index unchanged.

The consumer price index is used to

monitor changes in the cost of living over time.

Consider a small economy in which consumers buy only two goods: apples and pears. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that

neither the number of apples nor the number of pears bought by the typical consumer changes from year to year.

Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn more than 400 times as much as Babe Ruth earned in 1931. However, prices have also risen since 1931. We can conclude that

one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931

The economy's inflation rate is the

percentage change in the price level from the previous period.

A decrease in the price of domestically produced industrial robots will be reflected in

the GDP deflator but not in the consumer price index.

An important difference between the GDP deflator and the consumer price index is that

the GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of goods and services bought by consumers.

Changes in the producer price index are often thought to be useful in predicting changes in

the consumer price index.

As long as prices are rising over time, then

the nominal interest rate exceeds the real interest rate.

The term inflation is used to describe a situation in which

the overall level of prices in the economy is increasing.

Because the CPI is based on a fixed basket of goods, the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living. This is so because

when a new good is introduced, it gives consumers greater choice, thus reducing the amount they must spend to maintain their standard of living.