Macroeconomics CPI True/False

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If lenders demand a real rate of return of 4 percent and they expect inflation to be 5 percent, then they should charge 9 percent interest when they extend loans.

True

If the Bureau of Labor Statistics fails to recognize that recently produced automobiles can be driven for many more miles than older models, then the CPI tends to overestimate the cost of living.

True

If the nominal interest rate is 12 percent and the rate of inflation is 7 percent, then the real rate of interest is 5 percent.

True

If workers and firms agree on an increase in wages based on their expectations of inflation and inflation turns out to be less than they expected, workers will gain at the expense of firms.

True

If your wages rises from $5.00 to $6.25 while the CPI rises from 112 to 121, you should feel an increase in your standard of living.

True

Inflation = ((difference in CPI) / (CPI of base year)) * 100

True

Inflation can be measured by the GDP deflator.

True

Inflation can be measured by the PPI.

True

Inflation rate = ((change in CPI) / base-year CPI) * 100

True

An increase in the price of diamonds will have a greater impact on the CPI than an equal percentage increase in the price of food because diamonds are so much more expensive.

False

An increase in the price of helicopters purchased by the U.S. military is captured by the CPI.

False

Because an increase in gasoline prices causes consumers to ride their bikes more and drive their cars less, the CPI tends to underestimate the cost of living.

False

CPI includes prices of government purchases

False

If borrowers and lenders agree on a nominal interest rate and inflation turns out to be greater than they had anticipated, lenders will gain at the expense of borrowers.

False

If the CPI rises at 5 percent per year, then every individual in the country needs exactly a 5 percent increase in their income for their standard of living to remain constant.

False

Inflation can be measured by the finished goods price index.

False

It is impossible for real interest rates to be negative.

False

The CPI will be most influenced by a 10 percent increase in the category of transportation.

False

The largest category of goods and services in the CPI is medical care.

False

The produce price index (PPI) is constructed to measure the change in price of total production.

False

GDP Deflator = (nominal GDP/real GDP) * 100

True

An increase in the price of imported cameras is captured by the CPI but not by the GDP deflator.

True

CPI = (cost of basket this year) / (cost of basket base year)

True

GDP = Consumption + Investment + Government Purchases + Net Exports

True

The "base year" in a price index is the benchmark year against which other years are compared.

True


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