Econ Chapter 24

The table shows consumer price index data for the United States. Based on this information, what is the rate of inflation in 2006?

3.22%

The consumer price index is used to measure inflation rates relevant to _____.

consumers

What is Uganda's real GDP if its nominal GDP is $27.5 billion (in current US$), and the GDP deflator is 163.4?

$16.8 billion

The table shows consumer price index data for the United Kingdom. Based on this information, what is the rate of inflation in 2016?

1%

If you see that the consumer price index this year is lower than the consumer price index last year, this means that:

on average, prices went down across the economy.

The real interest rate is the:

nominal interest rate minus the rate of inflation

Over time, prices tend to _____, making contracts that last forever in terms of guaranteeing price a bad deal.

rise

Once a representative basket has been made, the next step is to assess the _____ that the goods in the basket are bought at.

average prices

The table shows consumer price index data for the United States. Based on this information, what is the rate of inflation in 1991?

4.22%

Hyperinflation is:

extremely high rates of inflation

Which of the following shows the medium of exchange function of money?

Daniela goes to the store and purchases roses with U.S. dollars.

A variable measured in dollars whose value may fluctuate over time is known as a(n):

nominal variable.

Money would NOT include:

standardized laptops that are used throughout the government.

Money illusion is the:

tendency to focus on nominal values instead of inflation-adjusted values.

Which of the following lists the functions of money?

medium of exchange, store of value, and unit of account

After just receiving her paycheck, Sasha is off to spend it on fixing her car. Sasha tows her broken-down vehicle to the auto shop, where she negotiates her price and then swipes her debit card to complete the transaction. Sasha is using money as a:

medium of exchange.

Having to go through the effort of carrying large amounts of cash diminishes money's function as a _____ as hyperinflation _____ the value of money.

medium of exchange; lowers

Variables such as the amount spent on a car wash last week, a current stock price, or the current GDP of the economy would be classified as:

nominal.

The costs incurred when trying to avoid holding cash are called:

shoe-leather costs

Inflation _____ the productivity of money because it leads to everything costing _____ as the value of money decreases.

undermines; more

Jessica is a realtor who is showing her clients two houses in Puerto Rico. Both houses are almost identical, but one has a pool while the other does not. To help her clients decide on which house to choose, Jessica emphasizes how the price difference between the houses is mostly accounted for by the inclusion of the pool in one. Jessica is using money as a:

unit of account.

When higher house prices encourage construction managers to build _____ houses, the managers may be confused because _____ inflation may be the cause instead of high demand.

more; high

After determining what is in the basket of goods and the prices for the goods, the next step in calculating the consumer price index is to:

multiply the goods and services by their prices and then add them together.

You purchase a certificate of deposit that earns an advertised rate of 1.75% interest per year. What is your real rate of return if the actual inflation rate is 1.9%?

-0.15%

If the economy has a nominal growth rate of 3.0 percent and a real growth rate of 2.3 percent, what is the inflation rate for that year?

0.7 percent

You purchase a certificate of deposit and expect an inflation rate of 1.5% over the next year. Your nominal rate of interest is 2.25%. What is your expected real rate of return?

0.75%

You purchase a certificate of deposit and expect an inflation rate of 1.25% over the next year. Your nominal rate of interest is 2.1%. What is your expected real rate of return?

0.85%

In the year 1890, a single carton of milk cost $0.18. In the year 1891, the same carton of milk cost $0.40. If the consumer price index only included milk, what would the inflation rate have been from 1890 to 1891?

122.22 percent

In 1971, the cost of a four-year college degree from a public university was about $1,410. The consumer price index was 40.48 in January 1971. If the current consumer price index is 251.1, what is the approximate cost of the four-year degree in current dollars?

$8,746

Mathematically, today's dollars are equal to:

another time's dollars × (price level today ÷ price level at another time)

Daniel has been working hard all year and just received a bonus check from his employer. Rather than spend it now, Daniel stores all his money in a high-yield savings account because he is planning to buy a boat in the future. Daniel is using money as a:

store of value.

The GDP deflator is an index that tracks the:

price of all goods and services produced domestically.

What is Sri Lanka's GDP deflator if its nominal GDP is $88.9 billion (in current US$) and the real GDP is $59.34 billion?

149.8

If Cathy's crepe cart grossed $50,000 in profits in 1980 at a CPI of 200, and grossed $100,000 in profits in 1996 at a CPI of 300, what year had the higher inflation-adjusted income and by how much in 1996 dollars?

1996 by $25,000

Menu costs are the:

marginal costs of adjusting prices.

Hyperinflation erodes which functions of money? I. Unit of account II. Store of value III. Medium of exchange

I, II, and III

An employee who successfully argues for an indexation clause will see their pay adjust as:

inflation changes

The annual percentage increase in the average overall level of prices is defined as the:

inflation rate

The personal consumption expenditure deflator _____ affected by substitution bias because the basket of goods is _____ just like the chained CPI.

is not; continually updated

In 1995, when the consumer price index was 152.38, women earned a median income of $12,130 per year. If the consumer price index in 2015 was 236.99, how much was $12,130 in 2015 dollars?

$18,865

Consider the following basket of goods: 50 bottles of milk, 100 avocadoes, 50 apples, and eight pineapples. Suppose that last year, each bottle of milk was $2.50, each avocado was $1.50, each apple was $0.75, and each pineapple was $4. This year, each bottle of milk is $2.50, each avocado is $1.80, each apple is $0.80, and each pineapple is $4.30. What is the inflation rate between last year and this year?

10.13%

If the economy had a real GDP of $16 trillion and a nominal GDP of $18 trillion, what would be the value of the GDP deflator?

112.5

A nominal variable would be preferred over a real one in the following situation:

a couple comparing the interest on a housing loan offered by two banks.

In the United States, the government agency in charge of calculating the consumer price index is the _____, which is also responsible for handling statistics on unemployment and categorizing fields of work.

Bureau of Labor Statistics

Which of the following correctly shows the steps needed to calculate the inflation rate?

Find out what people typically buy, collect the prices from the stores where people shop, tally up the cost of the basket of goods and services, and calculate the inflation rate.

_______ measures all items within the economy, including health care, electricity, and housing.

The personal consumption expenditure deflator

New products such as indoor plumbing or a cell phone make people _____ and result in the consumer price index _____ because they are not reflected in the basket of goods.

better off; being inaccurate

After deciding what's in the basket of goods, determining the prices for the goods, and multiplying the goods by their prices, the final step in calculating the consumer price index is to _____ by comparing the price levels of the basket at different points in time.

calculate the inflation rate

A real variable would be preferred over a nominal one in the following situation:

comparing the cost of the average grocery bill of a family in 2019 and 2021.

An index that tracks the average price consumers pay over time for a representative "basket" of goods and services is known as a(n):

consumer price index.

Inflation results in a _____ in the value of money as the price for all goods goes up while the amount of money tends to _____.

decline; stay constant

When the general price level of a variety of goods and services is decreasing, the economy is experiencing _____. If the general price level is increasing, the economy is experiencing _____.

deflation; inflation

The consumer price index measures a _____ basket of goods for a given time period, so when people change what they buy, it is _____ in the consumer price index.

fixed; not measured

When inflation is _____, a person is less likely to store their money under the mattress and save it for later because money's usefulness as a _____ decreases.

high; store of value

Coke making all its vending machines charge one price was a bad idea because over time prices tend to _____, so the company received less actual money for every Coke sold.

increase

Automatically adjusting wages, benefits, tax brackets, and the like to compensate for inflation is known as:

indexation

Apples and mechanical repairs costing more today than they did in the 1950s is the result of:

inflation

If you see that inflation between last year and this year is 3%, this means that:

on average, prices went up across the economy by 3%.

Instead of the consumer price index, the Federal Reserve uses the _____, which includes all items in the economy rather than just what consumers pay for.

personal consumption expenditure (PCE) deflator