Exam 18: Measuring the Price Level and Inflation

Samantha is lending Jack $1,000 for one year. The CPI is 1.60 at the time the loan is made, and they both expect it to be 1.68 in one year. If Samantha and Jack agree that Samantha should earn a 3 percent real return for the year, the nominal interest rate on this loan should be ________ percent.

An inflation rate of over 500 percent per year would be classified as:

The real cost of borrowing is unchanged when the ________ interest rate and the ________ rate increase by the same amount.

The consumer price index measures the cost of:

The consumer price index for Planet Econ consists of only two items: books and hamburgers. In 2015, the base year, the typical consumer purchased 10 books for $25 each and 25 hamburgers for $2 each. In 2017, the typical consumer purchased 15 books for $30 each and 30 hamburgers for $3 each. The consumer price index for 2017 on Planet Econ equals:

Inflation-protected bonds guarantee investors:

________ is an increase in the price level, while ________ is an increase in the price of one good in comparison to other goods and services.

If workers and employers agree to a three-year wage contract under the expectation of 5 percent inflation, and inflation turns out to be 3 percent, then:

All of the following are nominal quantities except the:

The nominal interest rate is the:

A labor contract provides for a first-year wage of $10 per hour, and specifies that the real wage will rise by 3 percent in the second year of the contract. The CPI is 1.00 in the first year and 1.07 in the second year. What dollar wage must be paid in the second year?

A factory worker earned $10 an hour in 1980. The CPI was 0.82 in 1980. The same factory worker was earning $15 an hour in 1990 when the CPI was 1.31. From 1980 to 1990, the factory worker's hourly real wage:

Marge is lending Martin $1,000 for one year. The CPI is 1.60 at the time the loan is made. They expect it to be 1.76 in one year. If Marge and Martin agree that Marge should earn a 3 percent real return for the year, the nominal interest rate on this loan should be ________ percent.

Deflating a nominal quantity is the process of dividing a ________ quantity by a ________ in order to express the quantity in ________ terms.

A college graduate in 1972 found a job paying $7,200. The CPI was 0.418 in 1972. A college graduate in 2016 found a job paying $60,000. The CPI was 2.40 in 2016. The 1972 graduate's job paid ________ in nominal terms and ________ in real terms than the 2016 graduate's job.

When consumers substitute a cheaper good for a more expensive one, the CPI will ________ the change in the cost of living.

The "true" costs of inflation to an economy include all of the following except:

The real rate of return on holding cash is equal to:

The substitution bias in the CPI refers to the failure of statisticians to:

Suppose the value of the CPI is 1.100 in year one, 1.210 in year two, and 1.331 in year three. Assume also that the price of computers increases by 3 percent between year one and year two, and by another 3 percent between year two and year three. The price level is increasing, the inflation rate is ________, and the relative price of computers is ________.