Exam 7: The Price Level and Inflation

Suppose workers agreed to a contract that guaranteed a real wage increase of 3 percent per year.If the inflation rate was 7 percent over the following year,what is the required increase in the nominal wage to meet the contract requirements?

The real interest rate on a loan

Suppose that the Department of Transportation is compiling data on traffic accidents and it wants to present the data in the form of an index.If there were 2,000 accidents in the base year,2007,and 2,100 accidents in 2008,what is the value of the index for 2008?

A decline in real income

If we read that the CPI had value of 120 in 2005,we would know that

In the following index,which year is most likely to be the base period: 2003 = 123.3;2004 = 145.3;2005 = 111.4;2006 = 100;2007 = 94.3?

When a new discount retailer,like Wal-Mart,opens a store,people save money.The CPI

A low rate of inflation,whereby prices increase so slowly from week to week that we hardly notice the change,is referred to as

If the price level is falling,the economy is experiencing

Which of the following would be included in the Consumer Price Index but not in the GDP Price Index?

Inflation reduces the average real income in the economy and redistributes purchasing power.

The Consumer Price Index includes the prices of only those goods

Prices of finished imported goods are

Parvez is trying to decide whether or not he should lend $1,000 to Eli for a year.Eli would pay a fixed nominal interest rate of 8 percent.Parvez expects the inflation rate to be 4 percent for the year.If he does not lend the $1,000 to Eli,Parvez will purchase an indexed savings bond that pays an interest rate of 4 percent,or he will put the money in a (nonindexed)savings account earning 6 percent.Parvez

The real wage can increase only if the nominal wage increases.

If you believe that the inflation rate is likely to be high over the next ten years,you would want to

In general,a higher-than-anticipated inflation rate

The price of a typical basket of goods and services in one period divided by the price of the same basket in a different year is a(n)

If the CPI for 2008 was 112,the typical market basket purchased that year would cost

Which of the following describes the correct relationship among the nominal interest rate,the real interest rate,and the inflation rate?