Macroeconomics CPI True/False
If lenders demand a real rate of return of 4 percent and they expect inflation to be 5 percent, then they should charge 9 percent interest when they extend loans.
True
If the Bureau of Labor Statistics fails to recognize that recently produced automobiles can be driven for many more miles than older models, then the CPI tends to overestimate the cost of living.
True
If the nominal interest rate is 12 percent and the rate of inflation is 7 percent, then the real rate of interest is 5 percent.
True
If workers and firms agree on an increase in wages based on their expectations of inflation and inflation turns out to be less than they expected, workers will gain at the expense of firms.
True
If your wages rises from $5.00 to $6.25 while the CPI rises from 112 to 121, you should feel an increase in your standard of living.
True
Inflation = ((difference in CPI) / (CPI of base year)) * 100
True
Inflation can be measured by the GDP deflator.
True
Inflation can be measured by the PPI.
True
Inflation rate = ((change in CPI) / base-year CPI) * 100
True
An increase in the price of diamonds will have a greater impact on the CPI than an equal percentage increase in the price of food because diamonds are so much more expensive.
False
An increase in the price of helicopters purchased by the U.S. military is captured by the CPI.
False
Because an increase in gasoline prices causes consumers to ride their bikes more and drive their cars less, the CPI tends to underestimate the cost of living.
False
CPI includes prices of government purchases
False
If borrowers and lenders agree on a nominal interest rate and inflation turns out to be greater than they had anticipated, lenders will gain at the expense of borrowers.
False
If the CPI rises at 5 percent per year, then every individual in the country needs exactly a 5 percent increase in their income for their standard of living to remain constant.
False
Inflation can be measured by the finished goods price index.
False
It is impossible for real interest rates to be negative.
False
The CPI will be most influenced by a 10 percent increase in the category of transportation.
False
The largest category of goods and services in the CPI is medical care.
False
The produce price index (PPI) is constructed to measure the change in price of total production.
False
GDP Deflator = (nominal GDP/real GDP) * 100
True
An increase in the price of imported cameras is captured by the CPI but not by the GDP deflator.
True
CPI = (cost of basket this year) / (cost of basket base year)
True
GDP = Consumption + Investment + Government Purchases + Net Exports
True
The "base year" in a price index is the benchmark year against which other years are compared.
True
