ECON 2020 Ex. 2 Inflation

If your nominal wage rises more slowly than the price level, we can say your real wage has ________ and the purchasing power of a dollar has ________.

Fallen, fallen

Nominal income is equal to real income if the CPI is less than 100.

False

The inflation rate measures the average prices of goods and services in the economy.

False

To obtain real average hourly earnings, nominal average hourly earnings are multiplied by the CPI.

False

The broadest measure of the price level that includes all final goods and services is

the GDP deflator.

The broadest measure of the price level that includes all final goods and services is

the GDP price deflator

Which of the following would be the best measure of the cost of living?

consumer price index

The real interest rate equals the nominal interest rate ________ the inflation rate.

minus

The "new product bias" in the consumer price index refers to the idea that

new products' prices often decrease after their initial introduction, and the CPI is adjusted infrequently and overestimates the cost to consumers.

The stated interest rate on a loan is the

nominal interest rate

Most economists believe that the biases in the consumer price index cause the CPI to overstate the true inflation rate by about

one-half to one percentage point.

The PPI is the

producer price index

If we want to use a measure of inflation that foreshadows price changes before they affect prices at the retail level, we would base our measure of inflation on

the PPI (producer price index)

What does the PPI measure?

the average of the prices received by producers of goods and services at all stages of the production process

The CPI is also referred to as

the cost of living index

The CPI is also referred to as

the cost-of-living index.

When deflation occurs

the real interest rate is greater than the nominal interest rate.