Chapter 9 - Inflation

Refer to Table 9-9. Looking at the table above, real average hourly earnings in 2009 were Answers: $9 $9.52 $10 $12.63

$10

Suppose your grandfather earned a salary of $12,000 in 1964. If the CPI is 31 in 1964 and 219 in 2010, then the value of your grandfather's salary in 2010 dollars is approximately Answers: $84,775. $63,830. $37,200. $26,280.

$84,775.

Refer to Table 9-9. Looking at the table above, real average hourly earnings were equal to ________ in 2010. Answers: $9 $9.52 $10 $12

$9.52

If the nominal rate of interest is 6.5% and the inflation rate is 3.0%, what is the real rate of interest? Answers: -9.5% -3.5% 1.5% 3.5% 9.5%

3.5%

If the number employed is 190 million, the working-age population is 230 million, and the number unemployed is 10 million, then the unemployment rate is Answers: 5%. 5.2%. 8%. 10%. 50%.

5%

Imagine that you borrow $5,000 for one year and at the end of the year you repay the $5,000 plus $600 of interest. If the inflation rate was 4%, what was the real interest rate you paid? Answers: 16 percent 12 percent 8 percent 6 percent

8 percent

If the CPI changes from 125 to 120 between 2010 and 2011, how did prices change between 2010 and 2011? Answers: Prices increased by 25%. Prices decreased by 5% Prices increased by 5%. Prices decreased by 4%.

Prices decreased by 4%.

Suppose that in 2012, all prices in the economy double and that all wages and salaries have also doubled. In 2012 you Answers: cannot determine whether you are better off or worse off than you were in 2011, because the purchasing power of your salary cannot be determined. are better off than you were in 2011 as your salary is higher than it was in 2011 and you can now buy more goods and services. are worse off than you were in 2011 as you can no longer afford to buy as many goods and services. are no better off or worse off than you were in 2011 as the purchasing power of your salary has remained the same.

are no better off or worse off than you were in 2011 as the purchasing power of your salary has remained the same.

If consumers purchase fewer of those products that increase most in price and more of those products that decrease in price as compared to the CPI basket, then Answers: changes in the CPI understate the true rate of inflation. changes in the CPI are unrelated to the true rate of inflation. changes in the CPI accurately reflect the true rate of inflation. changes in the CPI overstate the true rate of inflation.

changes in the CPI overstate the true rate of inflation.

If inflation is positive and is perfectly anticipated, Answers: those that hold paper money lose. those that lend money lose. those that borrow money lose. no one in the economy loses.

those that hold paper money lose.