Quiz 6
John's wage increases from $100 per day in year Y to $130 per day in year Z. At the same time, the CPI increases from 100 to 142. John is better off in year Z because his real income is higher.
False
The CPI increased from 120 to 150. If you received a raise equal to 25% during this time period then your real income has increased.
False
The consumer price index is calculated as: (the cost of a basket of goods in the base year/the cost of the basket of goods in the current year) x 100.
False
If the CPI has a value of 200 in year X and has a value of 300 in year Y then $500 in year X has the same purchasing power at how many dollars in year Y? Enter a whole number with no dollar sign.
$500 * (300/200) = $750 i think
You deposit $900 in a savings account and one year later you have $945. At the same time, the CPI increases from 200 to 206. The nominal interest rate is _____% and the real interest rate is _____%.
nominal interest rate: ($945 - $900)/$900 = 5% real interest rate: nominal - CPI percent difference = 5% - (206-200)/200 = 5% - 3% = 2%
Bill's nominal income in 1990 was $1,065 per month. The CPI had a value of 145 in 1990 and had a value of 191 in 2017. What is Bill's real income in 1990, measured in base year dollars? Enter a number rounded to two decimal places with no dollar sign.
$1065 * (100/145) = $734.48
Bill's nominal income in 1990 was $1,270 per month. The CPI had a value of 128 in 1990 and had a value of 228 in 2017. What is Bill's real income in 1990, measured in 2017 dollars? Enter a number rounded to two decimal places with no dollar sign.
$1270 * (228/128) = $2262.19
If the consumer price index increases from 138 to 164 then in percentage terms you would like to have a cost of living adjustment equal to how much? Enter a number rounded to two decimal places.
((164-138)/138)*100 = 18.84
In a given year, nominal GDP is $411.35 billion and real GDP is $363.92 billion. Find the GDP deflator. Enter a number rounded to two decimal places.
(Nominal/Real)*100 = ($411.35 billion / $363.92 billion)*100 = 113.03
If the average wage paid to the worker was $20 in 1990 and $30 in 2000, then the average worker in the year 2000 must have had a higher standard of living.
False
If the price index increases from 120 to 130 then the inflation rate during the past year was 10%.
False
If your bank pays you an interest rate of 6% and the inflation rate is 2% then your real rate of return is 8%.
False
Suppose the fixed basket of goods used to calculate the CPI consists of 4 units of good A, 3 units of good B, and 2 units of good C. From year 1 to year 2 the prices of the goods changed as shown in the table. Year 1 is the base year. Price in year 1 Price in year 2 Good A $2.20 $2.53 Good B $3.40 $3.74 Good C $5.60 $5.88 The price of good A changed by _____%, the price of good B changed by _____%, and the price of good C changed by _____%. The overall inflation rate was _____%.
Good A: (($2.53-$2.20)/$2.20) * 100 = 15% Good B: (($3.74-$3.40)/$3.40) * 100 = 10% Good A: (($5.60-$5.88)/$5.88) * 100 = 5% Overall Inflation: (15%+10%+5%)/3 = 10%
Consider the following information about a simple country that produces two different goods: Year Price Quantity Price Quantity Milk Milk Cereal Cereal 2014 $4 100 $5 120 2015 $4.50 150 $5.50 180 2016 $5 200 $6 250 From 2014 to 2015: the growth rate of nominal GDP was _____% the growth rate of real GDP was _____%
Nominal GDP: (($1665-$1000)/$1000) * 100 = 66.5% Real GDP: (($1500-$1000)/$1000) * 100 = 50%
Consider the following information about a simple country that produces two different goods: Year Price Quantity Price Quantity Milk Milk Cereal Cereal 2014 $4 100 $5 120 2015 $4.50 150 $5.50 180 2016 $5 200 $6 250 Nominal GDP in 2014 was $_____ Nominal GDP in 2015 was $_____ Nominal GDP in 2016 was $_____
Nominal GDP in 2014: ($4*100)+($5*120) = $1000 Nominal GDPin 2015: ($4.50*150)+($5.50*180) = $1665 Nominal GDPin 2016: ($5*200)+($6*250) = $2500
Consider the following information about a simple country that produces two different goods: Year Price Quantity Price Quantity Milk Milk Cereal Cereal 2014 $4 100 $5 120 2015 $4.50 150 $5.50 180 2016 $5 200 $6 250 Real GDP in 2014 was $_____ Real GDP in 2015 was $_____ Real GDP in 2016 was $_____
RGDP in 2014: ($4*100)+($5*120) = $1000 RGDP in 2015: ($4*150)+($5*180) = $1500 RGDP in 2016: ($4*200)+($5*250) = $2050
If the CPI basket contains 5 units of good X and 1 unit of good Y then the average person must be spending a greater percentage of their income on good X.
True
If the price index has a value of 145 in 2015 then a basket of goods that cost $100 in the base year would cost $145 in 2015.
True
If your nominal salary does not increase for three years, your real salary will have declined.
True
The GDP deflator can be used to calculate the inflation rate.
True
The U.S. government has a target inflation rate of 2%.
True
The inflation rate measures the percentage change in the price index.
True
The purchasing power of the $20 bill declines over time due to inflation.
True
Suppose the fixed basket of goods used to calculate the CPI consists of 4 units of good A, 3 units of good B, and 2 units of good C. From year 1 to year 2 the prices of the goods changed as shown in the table. Year 1 is the base year. Price in year 1 Price in year 2 Good A $2.20 $2.53 Good B $3.40 $3.74 Good C $5.60 $5.88 The cost of the basket in year 1 is $_____ and the cost of the basket in year 2 is $_____ . The CPI value in year 1 is _____ and the CPI value in year 2 is _____.
Year 1 is (4*$2.20)+(3*$3.40)+(2*$5.60) = $30.20 Year 2 is (4*$2.53)+(3*$3.74)+(2*$5.88) = $33.10 CPI Year 1 is 100 CPI Year 2 is ($33.10/$30.20) * 100 = 109..60
If nominal income is $200 and the price of a good you buy is $20 then you can afford to buy _____ units. If your nominal income remains at $200 and the price of a good you buy is $25 then you can afford to buy _____ units. Your purchasing power has _____.
afford to buy: $200/$20 = 10 units price of good increases: $200/$25 = 8 units purchasing power has decreased
