Exam 11: Measuring the Cost of Living: Part B

If the current year CPI is 90,then the price level has decreased 10 percent since the base year.

The real interest rate is the interest rate corrected for inflation.

The CPI does not reflect the increase in the value of the dollar that arises from the introduction of new goods.

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.

If the nominal interest rate is 5 percent and the inflation rate is 2 percent,then the real interest rate is 7 percent.

The Bureau of Labor Statistics determines which prices are most important to the typical consumer by surveying consumers.

If the consumer price index is 120 in 2009 and 139.2 in 2010,then the rate of inflation for 2010 is 39.2 percent.

Archie has a savings account at a bank.If he earns 6 percent interest on his account and if there is deflation,then his purchasing power rises by more than 6 percent over the course of a year.

Persistent increases in the overall level of prices have been the norm.

The U.S.economy has never experienced deflation.

Kristine has a savings account at a bank.If the nominal interest rate she earns exceeds the rate of inflation,then her purchasing power increases over time.

Consumer price index = × 100.

Changes in the consumer price index are useful in predicting changes in the producer price index.

The Bureau of Labor Statistics is part of the U.S.Department of Labor.

Many economists believe the bias in the CPI is now only about half as large as it once was.

When the price of Italian wine rises,this change is reflected in the U.S.CPI but not in the U.S.GDP deflator.

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent.A year later,Bob withdraws his $105.If deflation was 7 percent during the year the money was deposited,then Bob's purchasing power has increased by 12 percent.

In the U.S. ,when the price of oil rises,the CPI rises by much more than does the GDP deflator.

The GDP deflator reflects the prices of all goods and services produced around the world,whereas the consumer price index reflects the prices of all goods and services bought by consumers.

The PPI is a price index that measures the cost to consumers of a typical basket of goods sold by firms.