Chapter 7 Macroeconomics
The 2010 real GDP using 2000 prices is _______. (NOTE: 2010 is the target year and 2000 is the reference year rather than the base year.) Multiple choice question.
$11.43 trillion
The 2000 real GDP using 2010 prices is ______. (NOTE: 2000 is the target year and 2010 is the reference year which differs from the base year.)
$13.125 trillion
Suppose you have a wage contract stipulating you get $50,000 annual nominal income starting this year (year 1). Assume inflation is 3%. What is the real value of your wages in two years (year 3)? Multiple choice question.
$47,130
Suppose you have a wage contract stipulating you get $50,000 annual nominal income starting this year (year 1). Assume inflation is 3%. The real value of your wages in the next year (year 2) is
$48,544
The 2010 real GDP using base year prices is $
14.3
If real economic growth is 3%, the inflation rate is 5%, and the nominal interest rate is 7%, then the real rate of interest is
2%
The Full Employment and Balanced Growth Act of 1978 established a goal for price stability to be an inflation rate less than
3
If the nominal interest rate is 9% and the anticipated inflation rate is 4 percent, what is the real interest rate?
5 percent
The construction of the CPI relies on prices collected in ______ cities across the United States.
85
A mortgage that adjusts the nominal interest rate to changing rates of inflation is known as a(an)
ARM
Market participants can protect themselves from inflation by indexing their nominal incomes through the use of
COLAs.
The measure of changes in the average price of consumer goods and services is known as the: Multiple choice question.
CPI
A price index that refers to all goods and services included in GDP is the
GDP deflator.
Cost-push inflation is caused by:
Increased production costs
redistributes total real income
Inflation
GDP uses current prices. GDP uses prices adjusted for inflation.
Nominal Real
The formula for real GDP is:
Nominal GDPGDP deflatorNominal GDPGDP deflator×100
What are the basic lessons learned about the redistributive effects of price changes?
Not everyone suffers equally from inflation. Not all prices rise at the same rate during an inflation.
Which of the following tracks the average prices received by producers?
PPI
The most visible consequence of inflation is _____ changes.
Price
Because of its (enter one word in the blank) effects, inflation increases social and economic tensions.
Redistributive
True or false: Because of its redistributive effects, inflation increases social and economic tensions. True false question.
True
True or false: Core inflation excludes volatile prices of goods like food and energy.
True
True or false: Deflation reverses the redistributions caused by inflation. True false question.
True
True or false: Hyperinflation is extraordinarily rapid inflation. True false question.
True
True or false: The omission of new products such as cellular phones causes the CPI to overstate the rate of inflation. True false question.
True
Real gross domestic product (GDP) is a measure of GDP that
accounts for prices changes
The movement of taxpayers into higher tax rates as nominal incomes grow is called:
bracket creep
When a worker's nominal income increases, thereby, moving him into a higher tax bracket, the worker experiences
bracket creep
price index measures the changes in the average price of consumer goods and services.
consumer
The formula for the (enter a full word in each blank, not a single letter) is the cost of the most recent market basket in the particular year divided by the cost estimate of the market basket in the base year multiplied by 100.
consumer price index (CPI)
Social security payments automatically increase when the CPI goes up because of the
cost of living adjustments
Inflation caused by an increase in the per-unit production costs at each level of total spending is called
cost-push
Inflation caused by an increase in the per-unit production costs at each level of total spending is called: Multiple choice question.
cost-push
The rocketing prices of imported oil in 1973-1974 and again in 1979-1980 are good illustrations of
cost-push
The rocketing prices of imported oil in 1973-1974 and again in 1979-1980 are good illustrations of
cost-push inflation
Too much spending chasing too few goods is the essence of - inflation.
demand pull
Inflation caused by an excess of total spending beyond the economy's capacity to produce is called
demand-pull inflation
In the short run, the CPI and PPI generally reflect ______ rates of inflation. Multiple choice question.
different (PPI increases before the CPI)
True or false: Changes in the CPI reflect changes in price as well as changes in quality.
false
The market basket of goods and services upon which the CPI is based is determined from annual surveys of
families.
If the CPI in a given year is recorded as 208, then we can say that the price of the market basket of items purchased by the typical consumer
has more than doubled since the base year
The idea that people whose nominal incomes rise more slowly than the rate of inflation end up worse off is called the:
income effect
If the price of housing increases drastically (a relatively important good in the CPI market basket), then the CPI _____.
increases by a large amount
If the price of flip-flops increases dramatically (a relatively unimportant good in the CPI market basket), then the CPI
increases negligibly
The _______ rate reflects the extent to which prices increase.
inflation
Economists believe there may be a trade-off between
inflation and unemployment
Real interest rates are the
interest rates quoted in the market minus the anticipated inflation rate
The redistributive effect of inflation impacts
lenders with fixed interest rate loans fixed income groups
The inflation rate as measured by the GDP deflator tends to be _____ the rate given by the CPI.
lower
Since 1980 the annual inflation rates in the United States have been _____ the rates experienced in most other countries. Multiple choice question.
lower than
illusion refers to the use of nominal income rather than real income to gauge changes in wealth.
money
Rising prices make people feel worse off even if their real income has not fallen. This is an example of. (Enter one word in each blank.)
money illusion
(New/Old) products are often slow to be included in the CPI, and when omitted tend to cause the CPI to be overstated.
new
When the anticipated rate of inflation is added to the real interest rate, the result is called the
nominal interest rate
Food and energy prices often complicate the measurement of inflation because supply and demand for these products
often change, creating temporary changes in prices
The absence of significant changes in the average price level, officially defined as a rate of inflation of less than 3 percent, is the United States goal of Multiple choice question.
price stability
Deflation is a great economic problem because:
prices and wages fall but debts remain the same
Cost-push inflation can originate on the supply side when
production facilities are destroyed
In general, the CPI only monitors the price of goods over time. It usually does not adjust for changes in the of the goods.
quality
BLANK income will be affected if the change in the price level differs from the change in a person's nominal income.
real
Nominal GDP divided by price index (in hundredths) equals:
real GDP
The value of final output produced in a given period, adjusted for changing prices is Multiple choice question.
real GDP
Inflation redistributes
real income
If you consume goods and services whose prices are rising slower than inflation, compared to the average person, you are: Multiple choice question.
relatively better off
If you hold your wealth in assets that are increasing in value slower than the rate of inflation, you are _______ those who hold assets that are increasing in value at the rate of inflation.
relatively worse off than
If you hold your wealth in assets that are increasing in value slower than the rate of inflation, you are _______ those who hold assets that are increasing in value at the rate of inflation. Multiple choice question.
relatively worse off than
With an adjustable rate mortgage, if the rate of inflation jumps, then the nominal rate on the mortgage will Multiple choice question.
rise.
Hyperinflation is often fueled by as spending accelerates and production declines. (Insert a single word.)
speculation
The annual percentage rate of increase in the average price level is called
the inflation rate
As average price levels change, economic decision-making becomes more:
uncertain
If price levels are rising rapidly and erratically, you may not commit to long term commitments because of Multiple choice question.
uncertainty about future costs.
A restraint in government spending to maintain price stability may result in
unemployment
The performance of inflation in the U.S. since 1800 has been very Multiple choice question.
uneven.
If due to inflation the real value of your savings makes you worse off than you were before, this is an example of the _________ effect. (Enter one word in the blank.)
wealth
The redistributive effect of inflation on income and wealth is composed of the:
wealth effect price effect income effect