Exam 19: Returns, Index Numbers, and Inflation

Jones Inc., a company manufacturing drills, earned a revenue of $5 million in 2011. This was 6% more than their revenue in 2009. The CPI for 2009 and 2011 was 115 and 122 respectively, while the PPI for 2009 and 2011 was 110 and 114 respectively. Which of the following accurately reflects the real growth in revenues between 2009 and 2011?

Firms A, B, and C operate in the market for computers. Each firm's product is popular in the market and distinct from what the other firms offer. The following table shows the prices of laptops from 2005 through 2007. If 2005 is used as the base year, which of the following statements about the prices of these laptops is true?

Which of the following types of returns capture the changes in purchasing power?

Jack Simmons is expecting to earn a 0.34% return on his investment in a government bond that matures next year. If the inflation rate during the time of maturity is expected to be 7%, what will be the real rate of return from his investment?

The Paasche index uses the ________ period quantities in deriving the weights.

Donna Warne purchased a share of company X at $700 one year ago. The share is now trading at $850. Calculate the percent capital gain if Donna sells her share at the current price.

The ________ equation is a theoretical relationship between nominal returns, real returns, and the expected inflation rate.

The income component is ________ for stocks, interest for bonds, and rental income for a real estate investments.

The real return from investing $100 in a stock for a year is computed to be 2%. If the nominal return from this investment is 3.5%, what is the expected inflation rate?

The Laspeyres price index uses the quantities evaluated in the base period to compute the weighted aggregate price index.

Which of the following correctly identifies the expression for calculating the inflation rate for period t, based on the CPI?

Gulten started her career with an annual salary of $82,000 in 2006. Five years later, in 2011, her salary had increased to $85,000 a year. If the values of the CPI (with a base of 1982−1984) for 2006 and 2011 are 201.6 and 224.9, respectively, compute the increase in Gulten's real income.

Alex Aliyev is a primary school teacher. When he started working in 2004, he was earning an annual salary of $36,000. In 2011, his salary was $48,000. The consumer price indices for 2004 and 2011 were 108 and 120, respectively. A) Compute the nominal increase in Alex's salary between 2004 and 2011. B) Compute the real increase in Alex's salary between 2004 and 2011. C) Interpret the result.

Firms A, B, and C operate in the market for computers. Each firm's product is popular in the market and distinct from what the other firms offer. The following table shows the prices of laptops from 2005 through 2007. If 2006 is used as the base year, which of the following statements is true?

Using 2008 as the base year, the simple price index for an algebra book in 2009 was computed to be 105. If the price of the book was $50 in 2009, compute the price in the base year.

The adjusted close price of a share is now $67. A year back, the adjusted close price of the same share was $50. What is the investment percent return for someone who holds 10 of these shares today?

If the price index for a particular year is 75, it implies that ________.

Which of the following statements is true of the CPI?

The following table shows the value of CPI for three years in a country. Which of the following is the annual inflation rate for 2005?

When Dana Roberts started her job as a librarian two years ago, her annual salary was $40,000. Although she is very good at her job and is now earning 10% more than what she started with, she notices that new hires in the same field are being offered $43,000 as an annual salary this year. Which of the following statements is most likely to be true?