ECO2013 Chapter 24
The CPI and the GDP deflator: A. generally move together. B. always show different patterns of movement. C. always show identical changes. D. generally show different patterns of movement.
A
The CPI is based on a A. fixed basket of consumer goods and calculated by the BLS B. variable basket of goods and calculated by the Fed C. fixed basket of producer goods and calculated by the BLS D. fixed basket of goods and calculated by the Council of Economic Advisors
A
The price index used to calculate most cost-of-living adjustments (COLAs) is the: A. consumer price index B. producer price index C. GDP deflator D. NDP deflator
A
Determine the effects on the CPI and the GDP deflator if Caterpillar raises the price of the industrial tractors it manufactures at its Illinois factory. A. The GDP deflator rises and the CPI raises B. The GDP deflator rises but the CPI does not C. Caterpillar is a foreign owned company so their output is not included in the US GDP or CPI D. The GDP deflator does not change but the CPI rises
B
The consumer price index is computed by comparing the cost of the typical market basket of goods purchased during a base year (evaluated at base year prices) with: A. The cost of the current market basket evaluated at current prices B. The cost of the same market basket evaluated at current prices C. The cost of the same market basket evaluated at base year prices D. The cost of the current market basket evaluated at base-year prices
B
The formula to compute the real interest rate is: A. real interest rate - nominal interest rate B. nominal interest rate - inflation rate C. real interest rate - inflation D. inflation rate - nominal interest rate
B
The real interest rate tells you: A. the number of dollars in your bank account. B. how fast the purchasing power of your bank account rises over time. C. how fast the number of dollars in your bank account rises over time. D. the purchasing power of your bank account.
B
Which of the following statements is FALSE? A. Inflation that is higher than expected benefits borrowers, and inflation that is lower than expected benefits lenders B. There are no costs or losses associated with expected inflation C. When unanticipated inflation occurs regularly, the degree of risk associated with investments in the economy increases D. Whether you gain or lose during a period of inflation depends on whether your income rises faster or slower than the prices of the things you buy
B
A price index in years after the base year: A. Is always greater than 100 B. Is never 100 C. Can be less than, greater than, or equal to 100 D. Is always less than 100
C
Given the following information for any given year: • the real interest rate for the year was 3%. • the nominal interest rate for the year was 6%. What was the inflation rate that year? A. 9% B. 6% C. 3% D. There is not enough information provided to answer this question
C
If the CPI in the first year was 90, in the second year was 100, and in the third year was 95, the economy experienced: A. Exactly 10 percent inflation between the first and second years and exactly 5 percent inflation between the second and third years. B. Exactly 20 percent inflation between the first and second years and exactly 5 percent deflation between the second and third years. C. Approximately 11 percent inflation between the first and second years and approximately 5 percent deflation between the second and third years. D. Approximately 15 percent inflation between the first and second years and approximately 5 percent inflation between the second and third years.
C
The CPI is A. is based on real GDP versus nominal GDP B. a measure of the overall cost of goods and services bought by a typical producer C. a measure of the overall cost of goods and services bought by a typical consumer D. is a measure of overall cost of all goods and services produced in an economy
C
The US Federal Open Market Committee views ________ as an acceptable level of inflation per year in the US (as measured by the CPI). A. 5% B. 0 C. 2% D. -2%
C
The nominal interest rate is the: A. real rate of return to the lender. B. real cost of borrowing to the borrower. C. interest rate as usually reported by banks. D. interest rate corrected for inflation.
C
The substitution bias in the consumer price index refers to the: A. substitution of quality for quantity in consumer purchases over time. B. substitution of new goods for old goods in the purchases of consumers. C. fact that consumers substitute toward goods that have become relatively less expensive. D. substitution of new prices for old prices in the basket of goods from one year to the next.
C
The term "inflation" is used to describe a situation in which: A. incomes in the economy are increasing. B. stock-market prices are rising. C. the overall level of prices in the economy is increasing. D. the economy is growing rapidly.
C
When prices are falling, economists say that there is: A. inflation B. an inverted inflation C. deflation D. a contraction
C
Unexpected inflation will: A. Hurt borrowers and lenders equally B. Have no effect on either borrowers or lenders C. Hurt borrowers D. Hurt lenders
D
_________________ is/are an example/s of a government program/s that is/are indexed A. Various parts of Medicare Social Security B. Various parts of Medicaid C. Supplemental Nutrition Assistance Program (SNAP) D. all of these answers are correct
D
If the price level rises, the value of money (buying power) A. rises B. falls and then rises C. rises and then falls D. None of these answers are correct E. falls
E
