Ch. 9 Economics

The basket of goods in the Consumer Price Index consists of about _________ products; that is, several hundred specific products in over __________ broad-item categories.

80,000; 200

Nancy's union has negotiated a three-year wage contract that provides for a 2.4% increase indexed to inflation. The rates of inflation are forecast to be 1.62%, 1.93% and 2.21% respectively. How will Nancy's wage increase be expressed in the new contract?

COLA plus 2.4%

The GDP deflator is a price index that includes the following components of GDP:

Consumption, Investment, Government plus Exports minus Imports

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

Employment Cost Index

An economics professor is discussing a measure of inflation over time based on a basket of goods comprised of all the components of GDP. Which measure is it?

GDP Deflator

The ____________________ is based on the prices of merchandise that are exported or imported.

International Price Index

Which of the following is the name used to describe the price index that consists of intermediate goods and finished goods?

Producer Price Index

What distinguishes the real value of a statistic from the nominal value of a statistic?

adjusting for inflation

Another term used to describe negative inflation is:

deflation

The situation where the buying power of money in terms of goods and services increases is called:

deflation

With regard to the economy, the term negative inflation is synonymous with which of the following?

deflation

Which of the following is not an example of one of the major categories in the overall CPI?

entertainment

The effects of inflation are seen in:

goods, services, wages and income levels

Inflation implies that the level of all prices _____________________.

increase

A payment is said to be ________________ if it is automatically adjusted for inflation.

indexed

When a price, wage, or interest rate is adjusted automatically with inflation, it is said to be __________.

indexed

A lender demands an interest rate in part to compensate for any expected ___________, so that the money that is repaid in the future will have at least as much buying power as the money that was originally loaned.

inflation

The percentage change in the price level from one time period to the next, whether the price level is measured in terms of money or as a price index, will be the _____________.

inflation rate

__________ implies that pressure for price increases reaches across _______________markets, not just one.

inflation; most

While one occasionally sees references to inflation over short time periods, the term typically implies a _____________ in prices.

ongoing rise

The effect of substitution bias is that the rise in the price of a fixed basket of goods over time tends to ___________________ the rise in a consumer's true cost of living, because it doesn't take into account that the person can substitute between goods according to changes in their relative prices.

overstate

The __________________ is the nominal interest rate minus the rate of inflation.

real interest rate

Two factors that complicate the calculation of the inflation rate are:

substitution and quality/new product bias

One of the reasons that a rise in the price of a fixed basket of goods over time tends to overstate the rise in a consumer's true cost of living, is:

substitution bias

The most commonly cited measure of inflation in the United States is:

the Consumer Price Index (CPI).

Inflation can be calculated in terms of how the overall cost of ___________________ changes over time.

the basket of goods