Question 1

Jay and Joyce meet George, the banker, to work out the details of a mortgage. They all expect that inflation will be 2 percent over the term of the loan, and they agree on a nominal interest rate of 6 percent. As it turns out, the inflation rate is 5 percent over the term of the loan.
a.What was the expected real interest rate?

Accepted Answer

a.The expected real interest rate was 4 ...

Question 2

You know that a candy bar costs sixty cents today. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in 1962 prices?

Accepted Answer

A)  sixty cents(today's CPI - 1962 CPI) 
B)  sixty cents(1962 CPI - today's CPI) 
C)  sixty cents(today's CPI / 1962 CPI) 
D)  sixty cents(1962 CPI / today's CPI) E) A) and D)
F) B) and C)

Question 3

If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation rate is 3 percent.

Accepted Answer

A) True 
 B)False

Question 4

When the overall level of prices in the economy is increasing, economists say that the economy is experiencing

Accepted Answer

A)  economic growth.
B)  stagflation.
C)  inflation.
D)  deflation.E) B) and C)
F) A) and B)

Question 5

The basket of goods in the consumer price index changes

Accepted Answer

A)  occasionally, as does the group of goods used to compute the GDP deflator.
B)  automatically, as does the group of goods used to compute the GDP deflator.
C)  occasionally, whereas the group of goods used to compute the GDP deflator changes automatically.
D)  automatically, whereas the group of goods used to compute the GDP deflator changes occasionally.E) B) and D)
F) B) and C)

Question 6

Henry Ford paid his workers $5 a day in 1914, when the CPI was 10. Today, with the price index at 177, the $5 a day is worth $88.50.

Accepted Answer

A) True 
 B)False

Question 7

The nominal interest rate tells you how fast the number of dollars in your bank account rises over time.

Accepted Answer

A) True 
 B)False

Question 8

Table 11-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. 
-Refer to Table 11-12. If the nominal interest rate was 8 percent in 2010, then

Accepted Answer

A)  the real interest rate in 2010 was 3 percent.
B)  the real interest rate in 2010 was 4 percent.
C)  Will's 2009 food expenditures in 2010 dollars amount to $5,800.
D)  Will's 2009 food expenditures in 2011 dollars amount to $6,200.E) A) and B)
F) C) and D)

Question 9

Table 11-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. 
-Refer to Table 11-12. Will's 2009 food expenditures in 2010 dollars amount to

Accepted Answer

A)  $5,500.
B)  $5,250.
C)  $4,975.
D)  $3,625.E) C) and D)
F) B) and C)

Question 10

The real interest rate tells you

Accepted Answer

A)  how fast the number of dollars in your bank account rises over time.
B)  how fast the purchasing power of your bank account rises over time.
C)  the number of dollars in your bank account today.
D)  the purchasing power of your bank account today.E) A) and C)
F) All of the above

Question 11

When computing the cost of the basket of goods and services purchased by a typical consumer, which of the following changes from year to year?

Accepted Answer

A)  the quantities of the goods and services purchased
B)  the prices of the goods and services
C)  the goods and services making up the basket
D)  All of the above are correct.E) A) and D)
F) None of the above

Question 12

Nate collected Social Security payments of $220 a month in 1985. If the price index rose from 90 to 108 between 1985 and 1986, then his Social Security payments for 1986 should have been

Accepted Answer

A)  $228.
B)  $238.
C)  $257.
D)  $264.E) C) and D)
F) A) and B)

Question 13

The inflation rate you are likely to hear on the nightly news is calculated from

Accepted Answer

A)  the GDP deflator.
B)  the CPI.
C)  the Dow Jones Industrial Average.
D)  the unemployment rate.E) A) and D)
F) C) and D)

Question 14

For any given year, the CPI is the price of the basket of goods and services in the

Accepted Answer

A)  given year divided by the price of the basket in the base year, then multiplied by 100.
B)  given year divided by the price of the basket in the previous year, then multiplied by 100.
C)  base year divided by the price of the basket in the given year, then multiplied by 100.
D)  previous year divided by the price of the basket in the given year, then multiplied by 100.E) A) and C)
F) B) and C)

Question 15

The inflation rate reported in the news is usually calculated from the GDP deflator rather than the consumer price index.

Accepted Answer

A) True 
 B)False

Question 16

If the nominal interest rate is 6 percent and the rate of inflation is 10 percent, then the real interest rate is

Accepted Answer

A)  -16 percent.
B)  -4 percent.
C)  4 percent.
D)  16 percent.E) A) and B)
F) All of the above

Question 17

The introduction of a new good

Accepted Answer

A)  increases the cost of maintaining the same level of economic well-being.
B)  decreases the cost of maintaining the same level of economic well-being.
C)  has no impact on the cost of maintaining the same level of economic well-being.
D)  may increase or decrease the cost of maintaining the same level of economic well-being, depending on how expensive the new good is.E) B) and C)
F) C) and D)

Question 18

Which of the following changes in the price index produces the greatest rate of inflation: 106 to 112, 112 to 118, or 118 to 124?

Accepted Answer

A)  106 to 112
B)  112 to 120
C)  118 to 126
D)  All of these changes produce the same rate of inflation.E) A) and C)
F) All of the above

Question 19

The consumer price index was 200 in 2006 and 210 in 2007. The nominal interest rate during this period was 6.5 percent. What was the real interest rate during this period?

Accepted Answer

A)  1.5 percent
B)  1.75 percent
C)  11.25 percent
D)  11.5 percentE) B) and D)
F) A) and B)

Question 20

If the price of domestically produced power tools increases, then

Accepted Answer

A)  the consumer price index and the GDP deflator will both increase.
B)  the consumer price index will increase, and the GDP deflator will be unaffected.
C)  the consumer price index will be unaffected, and the GDP deflator will increase.
D)  the consumer price index and the GDP deflator will both be unaffected.E) A) and B)
F) C) and D)

Exam 11: Measuring the Cost of Living

Which of the following changes in the price index produces the greatest rate of inflation: 106 to 112, 112 to 118, or 118 to 124?

Correct Answer
verified

The introduction of a new good

Correct Answer
verified

When the overall level of prices in the economy is increasing, economists say that the economy is experiencing

Correct Answer
verified

Nate collected Social Security payments of $220 a month in 1985. If the price index rose from 90 to 108 between 1985 and 1986, then his Social Security payments for 1986 should have been

Correct Answer
verified

If the nominal interest rate is 6 percent and the rate of inflation is 10 percent, then the real interest rate is

Correct Answer
verified

You know that a candy bar costs sixty cents today. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in 1962 prices?

Correct Answer
verified

When computing the cost of the basket of goods and services purchased by a typical consumer, which of the following changes from year to year?

Correct Answer
verified

The nominal interest rate tells you how fast the number of dollars in your bank account rises over time.

Correct Answer
verified

If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation rate is 3 percent.

Correct Answer
verified

The inflation rate you are likely to hear on the nightly news is calculated from

Correct Answer
verified

Correct Answer
verified
a.The expected real interest rate was 4 ...
View Answer

If the price of domestically produced power tools increases, then

Correct Answer
verified

Table 11-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. -Refer to Table 11-12. Will's 2009 food expenditures in 2010 dollars amount to

Correct Answer
verified

For any given year, the CPI is the price of the basket of goods and services in the

Correct Answer
verified

The consumer price index was 200 in 2006 and 210 in 2007. The nominal interest rate during this period was 6.5 percent. What was the real interest rate during this period?

Correct Answer
verified

The real interest rate tells you

Correct Answer
verified

Table 11-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. -Refer to Table 11-12. If the nominal interest rate was 8 percent in 2010, then

Correct Answer
verified

Henry Ford paid his workers $5 a day in 1914, when the CPI was 10. Today, with the price index at 177, the $5 a day is worth $88.50.

Correct Answer
verified

The basket of goods in the consumer price index changes

Correct Answer
verified

The inflation rate reported in the news is usually calculated from the GDP deflator rather than the consumer price index.

Correct Answer
verified

Exam 11: Measuring the Cost of Living

Which of the following changes in the price index produces the greatest rate of inflation: 106 to 112, 112 to 118, or 118 to 124?

Correct AnswerverifiedShow Answer

The introduction of a new good

Correct AnswerverifiedShow Answer

When the overall level of prices in the economy is increasing, economists say that the economy is experiencing

Correct AnswerverifiedShow Answer

Nate collected Social Security payments of $220 a month in 1985. If the price index rose from 90 to 108 between 1985 and 1986, then his Social Security payments for 1986 should have been

Correct AnswerverifiedShow Answer

If the nominal interest rate is 6 percent and the rate of inflation is 10 percent, then the real interest rate is

Correct AnswerverifiedShow Answer

You know that a candy bar costs sixty cents today. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in 1962 prices?

Correct AnswerverifiedShow Answer

When computing the cost of the basket of goods and services purchased by a typical consumer, which of the following changes from year to year?

Correct AnswerverifiedShow Answer

The nominal interest rate tells you how fast the number of dollars in your bank account rises over time.

Correct AnswerverifiedShow Answer

If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation rate is 3 percent.

Correct AnswerverifiedShow Answer

The inflation rate you are likely to hear on the nightly news is calculated from

Correct AnswerverifiedShow Answer

Correct Answerverifieda.The expected real interest rate was 4 ...View AnswerShow Answer

If the price of domestically produced power tools increases, then

Correct AnswerverifiedShow Answer

Table 11-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. -Refer to Table 11-12. Will's 2009 food expenditures in 2010 dollars amount to

Correct AnswerverifiedShow Answer

For any given year, the CPI is the price of the basket of goods and services in the

Correct AnswerverifiedShow Answer

The consumer price index was 200 in 2006 and 210 in 2007. The nominal interest rate during this period was 6.5 percent. What was the real interest rate during this period?

Correct AnswerverifiedShow Answer

The real interest rate tells you

Correct AnswerverifiedShow Answer

Table 11-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. -Refer to Table 11-12. If the nominal interest rate was 8 percent in 2010, then

Correct AnswerverifiedShow Answer

Henry Ford paid his workers $5 a day in 1914, when the CPI was 10. Today, with the price index at 177, the $5 a day is worth $88.50.

Correct AnswerverifiedShow Answer

The basket of goods in the consumer price index changes

Correct AnswerverifiedShow Answer

The inflation rate reported in the news is usually calculated from the GDP deflator rather than the consumer price index.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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a.The expected real interest rate was 4 ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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