Question 1

The real interest rate equals the nominal interest rate ________ the inflation rate.

Accepted Answer

The real interest rate equals the nominal interest rate minus the inflation rate. This is because the nominal interest rate includes both the real interest rate and the expected inflation rate. By subtracting the actual inflation rate from the nominal interest rate, we can determine the real interest rate.

Question 2

Housing is the largest component of the U.S.CPI market basket.

Accepted Answer

According to the Bureau of Labor Statistics, housing is the largest component of the U.S. CPI market basket, accounting for approximately 42% of the total CPI.

Question 3

Table 20-8
  
The table above reports the nominal average hourly earnings in private industry and the consumer price index for 1965 and 2010.
-Refer to Table 20-8.The real average hourly earnings for 1965 in 2010 dollars equal

Accepted Answer

The answer of Table 20-8
  
The table above reports...

Question 4

You earned $30,000 in 1990,and your salary rose to $80,000 in 2011.If the CPI rose from 82 to 202 between 1990 and 2011,which of the following is true?

Accepted Answer

The CPI increase indicates inflation, but your salary increased at a higher rate than inflation, thus increasing your purchasing power.

Question 5

Nominal income is equal to real income if the CPI is less than 100.

Accepted Answer

Nominal income is not equal to real income if the CPI is less than 100. Real income is calculated by adjusting nominal income for inflation. If the CPI is less than 100, it means that prices have decreased since the base year, which would result in a higher real income for a given nominal income.

Question 6

Suppose your grandfather earned a salary of $12,000 in 1964.If the CPI is 31 in 1964 and 219 in 2010,then the value of your grandfather's salary in 2010 dollars is approximately

Accepted Answer

The correct answer is A.The CPI (Consumer Price Index) measures the change in the price of goods and services over time. In this case, the CPI in 1964 was 31 and the CPI in 2010 was 219. This means that the cost of goods and services increased by a factor of 219/31 = 7.0645 between 1964 and 2010.To find the value of your grandfather's salary in 2010 dollars, we need to multiply his salary by the factor 7.0645. Therefore, the value of his salary in 2010 dollars is $12,000 * 7.0645 = $84,774.

Question 7

Table 20-10
  
Salaries in major league baseball have soared over the last 30 to 40 years. Some of the salary increase is due to inflation. The table above reports the consumer price index and the median nominal salary of the New York Yankees for 1989 and 2009.
Source: USA Today Salaries Database, asp.usatoday.com/sports/baseball/salaries/default.aspx
-Refer to Table 20-10.Calculate the real median salary of the New York Yankees in both 1982-1984 dollars and 2009 dollars.Calculate the percentage increase in the median salary of the Yankees from 1989 to 2009 in both nominal terms and in real terms.

Accepted Answer

The answer of Table 20-10
  
Salaries in major league...

Question 8

Table 20-8
  
The table above reports the nominal average hourly earnings in private industry and the consumer price index for 1965 and 2010.
-Refer to Table 20-8.The percentage change in real average earnings from 1965 to 2010 equals

Accepted Answer

Real average earnings equals nominal average earnings divided by the consumer price index (CPI) multiplied by 100.

Real average earnings in private industry in 1965:
$2.50/31.5 x 100 = 7.94

Real average earnings in private industry in 2010:
$22.86/218.056 x 100 = 10.49

The percentage change in real average earnings from 1965 to 2010 equals:

[(10.49-7.94)/7.94] x 100 = 24.5 percent.

Therefore, the best choice is C, 24.5 percent.

Question 9

The nominal interest rate equals the real interest rate ________ the inflation rate.

Accepted Answer

The nominal interest rate is equal to the real interest rate plus the inflation rate. This is represented by the formula: nominal interest rate = real interest rate + inflation rate.

Question 10

Currently,the base year for the CPI is the average of prices in the years 1982 to 1984.

Accepted Answer

The CPI uses the average of prices in the years 1982 to 1984 as the base year.

Question 11

Table 20-9
 
-Refer to Table 20-9.Looking at the table above,real average hourly earnings were equal to ________ in 2010.

Accepted Answer

The table shows that the real average hourly earnings were $9.52 in 2010.

Question 12

The inflation rate measures the average prices of goods and services in the economy.

Accepted Answer

The answer of The inflation rate measures the average prices...

Question 13

Table 20-8
  
The table above reports the nominal average hourly earnings in private industry and the consumer price index for 1965 and 2010.
-Refer to Table 20-8.The real average hourly earnings for 1965 in 1982-1984 dollars equal

Accepted Answer

To find the real average hourly earnings for 1965 in 1982-1984 dollars, we need to adjust the nominal average hourly earnings for inflation using the consumer price index (CPI). The formula for calculating real wages is (nominal wage/CPI) x 100. 
For 1965, the nominal average hourly earnings in private industry was $2.82 and the CPI was 31.5. 
($2.82/31.5) x 100 = $8.95 in 1965 dollars. 
To adjust for inflation to 1982-1984 dollars, we need to use the CPI for those years, which was 96.5. 
($8.95/96.5) x 100 = $8.28 in 1982-1984 dollars. Therefore, the correct answer is C.

Question 14

Why does the substitution bias cause the consumer price index to overstate inflation and the cost of living? Why does the increase in quality bias cause the consumer price index to overstate inflation and the cost of living?

Accepted Answer

The answer of Why does the substitution bias cause the...

Question 15

Table 20-7
 
-Refer to Table 20-7.Consider a simple economy that produces only three products: tacos,earplugs,and toothbrushes.Use the information in the table to calculate the inflation rate for 2010,as measured by the consumer price index.

Accepted Answer

The answer of Table 20-7
 
-Refer to Table 20-7.Consider a...

Question 16

Table 20-11
  
Source: Energy Information Administration
-Refer to Table 20-11.The table above reports the consumer price index and the average U.S.retail price for unleaded regular gasoline for four different periods since 1976.Note that the gasoline prices are in cents per gallon.
Calculate the real average retail price of unleaded regular gasoline in 1982-1984 dollars.In which period were gasoline prices the highest in real terms? Also,calculate the real average retail price of unleaded regular gasoline in 2011 dollars.

Accepted Answer

The answer of Table 20-11
  
Source: Energy Information Administration
-Refer...

Question 17

Table 20-9
 
-Refer to Table 20-9.Looking at the table above,real average hourly earnings in 2009 were

Accepted Answer

The answer of Table 20-9
 
-Refer to Table 20-9.Looking at...

Question 18

The real wage equals the nominal wage ________ the CPI,all times 100.

Accepted Answer

The real wage is calculated by dividing the nominal wage by the Consumer Price Index (CPI) and then multiplying by 100. This adjusts the nominal wage for inflation, providing a measure of the purchasing power of the wage.

Question 19

If your nominal wage rises faster than the price level,we can say your real wage has ________ and the purchasing power of your income has ________.

Accepted Answer

If your nominal wage rises faster than the price level, then your purchasing power would increase since the increase in the nominal wage surpasses the increase in prices, resulting in a higher real wage.

Question 20

The GDP deflator is the best measure that reflects the prices of goods and services purchased by the typical household.

Accepted Answer

The GDP deflator measures the changes in overall prices within the economy and is not necessarily reflective of the prices paid by individual households. The Consumer Price Index (CPI) is a better measure for reflecting the prices of goods and services purchased by households.

Quiz 9: Unemployment and Inflation

The real interest rate equals the nominal interest rate ________ the inflation rate.

Housing is the largest component of the U.S.CPI market basket.

Table 20-8 The table above reports the nominal average hourly earnings in private industry and the consumer price index for 1965 and 2010. -Refer to Table 20-8.The real average hourly earnings for 1965 in 2010 dollars equal

You earned $30,000 in 1990,and your salary rose to $80,000 in 2011.If the CPI rose from 82 to 202 between 1990 and 2011,which of the following is true?

Nominal income is equal to real income if the CPI is less than 100.

Suppose your grandfather earned a salary of $12,000 in 1964.If the CPI is 31 in 1964 and 219 in 2010,then the value of your grandfather's salary in 2010 dollars is approximately

Table 20-8 The table above reports the nominal average hourly earnings in private industry and the consumer price index for 1965 and 2010. -Refer to Table 20-8.The percentage change in real average earnings from 1965 to 2010 equals

The nominal interest rate equals the real interest rate ________ the inflation rate.

Currently,the base year for the CPI is the average of prices in the years 1982 to 1984.

Table 20-9 -Refer to Table 20-9.Looking at the table above,real average hourly earnings were equal to ________ in 2010.

The inflation rate measures the average prices of goods and services in the economy.

Table 20-8 The table above reports the nominal average hourly earnings in private industry and the consumer price index for 1965 and 2010. -Refer to Table 20-8.The real average hourly earnings for 1965 in 1982-1984 dollars equal

Why does the substitution bias cause the consumer price index to overstate inflation and the cost of living? Why does the increase in quality bias cause the consumer price index to overstate inflation and the cost of living?

Table 20-7 -Refer to Table 20-7.Consider a simple economy that produces only three products: tacos,earplugs,and toothbrushes.Use the information in the table to calculate the inflation rate for 2010,as measured by the consumer price index.

Table 20-9 -Refer to Table 20-9.Looking at the table above,real average hourly earnings in 2009 were

The real wage equals the nominal wage ________ the CPI,all times 100.

If your nominal wage rises faster than the price level,we can say your real wage has and the purchasing power of your income has .

The GDP deflator is the best measure that reflects the prices of goods and services purchased by the typical household.