Quiz 6
"A wage rising slower than the rate of inflation is actually falling."
True. If wages are increasing slower than the average price of goods and services, purchasing power falls.
What categories make up about 3/4 of the market basket?
housing, transportation, and food
The chapter explains that it is impossible to know whether a particular nominal interest rate is "high" or "low" because
it all depends on the inflation rate
Inflation can affect the distribution of income because
people with incomes rising faster than the rate of inflation enjoy an increasing purchasing power, while people with incomes rising more slowly than the rate of inflation are hurt by a decreasing purchasing power.
The difference between the nominal interest rate and the real interest rate is
the nominal interest rate is the stated interest rate whereas the real interest rate is the nominal interest rate minus the inflation rate
The true cost of borrowing and lending is best measured by
the real interest rate
An average of the prices of the goods and services purchased by a typical family is the:
Consumer Price Index (CPI)
The price index which is used to measure changes in the cost of living is the
Consumer Price Index (CPI)
Which of the following is not considered one of the potential biases in calculating the CPI?
Coverage bias
What is the Rule of 70?
It's a mathematical formula used to calculate the number of years it takes real GDP per capita or any other variable to double.
Which of the following makes changes in the CPI overstate the true inflation rate?
New Product Bias, Substitution Bias, Increase in quantity bias
Which of the following steps has not been taken by the BLS to reduce the size of biases in the CPI?
The BLS has expanded the number of stores from which it collects the price information to reduce the coverage bias.
Which of the following statements about prices and inflation is not correct?
The inflation rate shows the percentage change in prices across periods of time.
