Question 1

What is the difference between nominal and real economic variables? Why do economists tend to concentrate on changes in real magnitudes?

Accepted Answer

The answer of What is the difference between nominal and...

Question 2

The country of Myrule has produced the following quantity of gauges and potatoes,with the price of each listed in dollar terms.
  
(a)Using Year 1 as the base year,what is the growth rate of real GDP from Year 1 to Year 2?
(b)Based on the GDP deflator,what is the inflation rate from Year 1 to Year 2?

Accepted Answer

The answer of The country of Myrule has produced the...

Question 3

The expected real interest rate (r)is equal to

Accepted Answer

The expected real interest rate is the nominal interest rate minus the expected inflation rate. This is because inflation reduces the purchasing power of any interest earned or received, so the real interest rate accounts for the inflation in order to reflect the true earnings.

Question 4

You are given information on the consumer price index (CPI),where the values given are those for December 31 of each year. 
In which year was the inflation rate the highest?

Accepted Answer

The answer of You are given information on the consumer...

Question 5

If the price index last year was 1.0 and today it is 1.4,what is the inflation rate over this period?

Accepted Answer

The inflation rate is calculated as the percentage increase in the price index, which is (1.4 - 1.0) / 1.0 = 0.4 or 40%.

Question 6

The Boskin Commission concluded that the CPI overstates increases in the cost of living by ________ percentage point(s)per year.

Accepted Answer

The Boskin Commission concluded that the Consumer Price Index (CPI) overstates increases in the cost of living by 1 to 2 percentage points per year. This conclusion was based on their analysis of how the CPI accounted for changes in the cost of living, including issues like substitution bias, outlet substitution bias, and quality changes.

Question 7

By Marks buys a one-year German government bond (called a bund)for $400.He receives principal and interest totaling $436 one year later.During the year the CPI rose from 150 to 162.The nominal interest rate on the bond was ________,and the real interest rate was ________.

Accepted Answer

Nominal interest rate = (total received amount - principal)/principal = ($436 - $400)/$400 = 0.09 or 9%
Real interest rate = [(1 + nominal interest rate)/(1 + inflation rate)] - 1 = [(1 + 0.09)/(1 + ((162-150)/150))] - 1 = 0.01 or 1%.
Therefore, the nominal interest rate on the bond was 9%, and the real interest rate was 1%.

Question 8

In 2008,inflation exceeded expected inflation.In 2009,expected inflation exceeded inflation.Therefore the real interest rate was ________ than the expected real interest rate in 2008 and the real interest rate was ________ than the expected real interest rate in 2009.

Accepted Answer

If inflation exceeds expected inflation, then the real interest rate will be lower than the expected real interest rate. So in 2008, the real interest rate was lower than the expected real interest rate. On the other hand, if expected inflation exceeds inflation, then the real interest rate will be higher than the expected real interest rate. So in 2009, the real interest rate was higher than the expected real interest rate. Therefore, the answer is B.

Question 9

The U.S.inflation rate ________ in the 1960s and 1970s,________ in the 1980s,and ________ in the 1990s and 2000s.

Accepted Answer

The U.S. inflation rate rose during the 1960s and 1970s due to various economic pressures, including the oil crisis. It then fell sharply in the 1980s as a result of monetary policies implemented to curb inflation. Throughout the 1990s and 2000s, inflation rates remained relatively low, reflecting stable economic conditions.

Question 10

The nominal interest rate minus the inflation rate is the

Accepted Answer

The nominal interest rate minus the inflation rate is known as the real interest rate. This takes into account the effect of inflation on the purchasing power of money. A high nominal interest rate may not be beneficial if the inflation rate is even higher, as it means the real value of savings is decreasing. Therefore, the real interest rate is a more accurate measure of the cost of borrowing or the return on investment.

Question 11

By how much does the CPI overstate true increases in the cost of living,according to the Boskin Commission? What are the main reasons for this bias in the CPI? What are the economic implications of the bias?

Accepted Answer

The answer of By how much does the CPI overstate...

Question 12

The CPI may overstate inflation for all the following reasons except

Accepted Answer

Changes in Social Security benefits are not a reason why the CPI may overstate inflation. The other three choices can all create issues with accurately measuring inflation through the CPI.

Question 13

In 2008,expected inflation exceeded inflation.In 2009,inflation exceeded expected inflation.Therefore the real interest rate was ________ than the expected real interest rate in 2008 and the real interest rate was ________ than the expected real interest rate in 2009.

Accepted Answer

The answer of In 2008,expected inflation exceeded inflation.In 2009,inflation exceeded...

Question 14

Two years ago,the GDP deflator for Old York was 300,and today it is 330.75.Based on this information the annual average inflation rate for the two years was

Accepted Answer

The GDP deflator increased from 300 to 330.75 over two years. The formula for the annual average inflation rate is [(Final Value/Initial Value)^(1/Number of Years)] - 1. Plugging in the values: [(330.75/300)^(1/2)] - 1 = 0.05 or 5%.

Question 15

The consumer price index (CPI)was 180 for 2009 when using 1995 as the base year (1995 = 100).Now suppose we switch and use 2009 as the base year (2009 = 100).What is the CPI for 1995 with the new base year?

Accepted Answer

The answer of The consumer price index (CPI)was 180 for...

Question 16

The Fed prefers to focus on inflation based on which price index?

Accepted Answer

The Fed prefers to focus on the personal consumption expenditures price index (PCE) because it is a broader measure of prices and includes a wider range of goods and services than the consumer price index (CPI). Additionally, the PCE is considered to be a better indicator of consumer behavior as it takes into account changes in consumption patterns.

Question 17

Nominal government purchases were $2226.2 billion in 2008 and rose to $2372.8 billion in 2009.Real government purchases were $1940.6 for 2008 and $1958.0 for 2009,where 2005 was the base year.Calculate the percent change in the chain-weight price index for government purchases (rounded to the nearest percentage point)from 2008 to 2009.

Accepted Answer

To calculate the percent change in the chain-weight price index for government purchases, we need to use the following formula:
% Change = [(Real Year 2 * Price Year 2) - (Real Year 1 * Price Year 1)] / [(Real Year 1 * Price Year 1)]

Substituting the values:
% Change = [(1958.0 * 100) - (1940.6 * 100)] / [(1940.6 * 100)]
% Change = (195800 - 194060) / 194060
% Change = 0.0089

Rounding this to the nearest percentage point, we get:
% Change = 0.009 * 100
% Change = 0.9%
% Change = 1%

Therefore, the percent change in the chain-weight price index for government purchases from 2008 to 2009 is 1%, which is closest to option C) 6%.

Question 18

The Federal Reserve focuses on the inflation rate based on the ________ rather than the CPI; to measure the underlying trend in inflation,it focuses on the ________.

Accepted Answer

The Federal Reserve focuses on the Personal Consumption Expenditures (PCE) price index rather than the Consumer Price Index (CPI) to measure the inflation rate. To measure the underlying trend in inflation, it focuses on the core PCE price index, which excludes volatile food and energy prices.

Question 19

Nominal GDP in a country was $8759.9 billion in 2014 and $9254.6 billion in 2015.The GDP deflator was 102.86 for 2014 and 104.37 for 2015.
(a)What is the growth rate of nominal GDP between 2014 and 2015?
(b)What is the inflation rate from 2014 to 2015?
(c)What is the growth rate of real GDP from 2014 to 2015?

Accepted Answer

The answer of Nominal GDP in a country was $8759.9...

Question 20

In 1975,Richard Petty won the NASCAR race in Richmond,earning $6265.In 2006,Dale Earnhardt,Jr.,won the race,earning $239,166.The CPI index was 52.5 in 1975 and 198.7 in 2006 (base year = 1982-1984).Calculate the real earnings (based on base year 1982-1984)of both Petty and Earnhardt.

Accepted Answer

The answer of In 1975,Richard Petty won the NASCAR race...

Quiz 2: The Measurement and Structure of the National Economy

What is the difference between nominal and real economic variables? Why do economists tend to concentrate on changes in real magnitudes?

The country of Myrule has produced the following quantity of gauges and potatoes,with the price of each listed in dollar terms. (a)Using Year 1 as the base year,what is the growth rate of real GDP from Year 1 to Year 2? (b)Based on the GDP deflator,what is the inflation rate from Year 1 to Year 2?

The expected real interest rate (r) is equal to

You are given information on the consumer price index (CPI) ,where the values given are those for December 31 of each year. In which year was the inflation rate the highest?

If the price index last year was 1.0 and today it is 1.4,what is the inflation rate over this period?

The Boskin Commission concluded that the CPI overstates increases in the cost of living by ________ percentage point(s) per year.

By Marks buys a one-year German government bond (called a bund) for $400.He receives principal and interest totaling $436 one year later.During the year the CPI rose from 150 to 162.The nominal interest rate on the bond was ,and the real interest rate was .

In 2008,inflation exceeded expected inflation.In 2009,expected inflation exceeded inflation.Therefore the real interest rate was than the expected real interest rate in 2008 and the real interest rate was than the expected real interest rate in 2009.

The U.S.inflation rate in the 1960s and 1970s, in the 1980s,and in the 1990s and 2000s.

The nominal interest rate minus the inflation rate is the

By how much does the CPI overstate true increases in the cost of living,according to the Boskin Commission? What are the main reasons for this bias in the CPI? What are the economic implications of the bias?

The CPI may overstate inflation for all the following reasons except

In 2008,expected inflation exceeded inflation.In 2009,inflation exceeded expected inflation.Therefore the real interest rate was than the expected real interest rate in 2008 and the real interest rate was than the expected real interest rate in 2009.

Two years ago,the GDP deflator for Old York was 300,and today it is 330.75.Based on this information the annual average inflation rate for the two years was

The consumer price index (CPI) was 180 for 2009 when using 1995 as the base year (1995 = 100) .Now suppose we switch and use 2009 as the base year (2009 = 100) .What is the CPI for 1995 with the new base year?

The Fed prefers to focus on inflation based on which price index?

The Federal Reserve focuses on the inflation rate based on the rather than the CPI; to measure the underlying trend in inflation,it focuses on the .

In 1975,Richard Petty won the NASCAR race in Richmond,earning $6265.In 2006,Dale Earnhardt,Jr.,won the race,earning $239,166.The CPI index was 52.5 in 1975 and 198.7 in 2006 (base year = 1982-1984).Calculate the real earnings (based on base year 1982-1984)of both Petty and Earnhardt.

Quiz 2: The Measurement and Structure of the National Economy

What is the difference between nominal and real economic variables? Why do economists tend to concentrate on changes in real magnitudes?

The country of Myrule has produced the following quantity of gauges and potatoes,with the price of each listed in dollar terms. (a)Using Year 1 as the base year,what is the growth rate of real GDP from Year 1 to Year 2? (b)Based on the GDP deflator,what is the inflation rate from Year 1 to Year 2?

The expected real interest rate (r) is equal to

You are given information on the consumer price index (CPI) ,where the values given are those for December 31 of each year. In which year was the inflation rate the highest?

If the price index last year was 1.0 and today it is 1.4,what is the inflation rate over this period?

The Boskin Commission concluded that the CPI overstates increases in the cost of living by ________ percentage point(s) per year.

By Marks buys a one-year German government bond (called a bund) for $400.He receives principal and interest totaling $436 one year later.During the year the CPI rose from 150 to 162.The nominal interest rate on the bond was ________,and the real interest rate was ________.

In 2008,inflation exceeded expected inflation.In 2009,expected inflation exceeded inflation.Therefore the real interest rate was ________ than the expected real interest rate in 2008 and the real interest rate was ________ than the expected real interest rate in 2009.

The U.S.inflation rate ________ in the 1960s and 1970s,________ in the 1980s,and ________ in the 1990s and 2000s.

The nominal interest rate minus the inflation rate is the

By how much does the CPI overstate true increases in the cost of living,according to the Boskin Commission? What are the main reasons for this bias in the CPI? What are the economic implications of the bias?

The CPI may overstate inflation for all the following reasons except

In 2008,expected inflation exceeded inflation.In 2009,inflation exceeded expected inflation.Therefore the real interest rate was ________ than the expected real interest rate in 2008 and the real interest rate was ________ than the expected real interest rate in 2009.

Two years ago,the GDP deflator for Old York was 300,and today it is 330.75.Based on this information the annual average inflation rate for the two years was

The consumer price index (CPI) was 180 for 2009 when using 1995 as the base year (1995 = 100) .Now suppose we switch and use 2009 as the base year (2009 = 100) .What is the CPI for 1995 with the new base year?

The Fed prefers to focus on inflation based on which price index?

The Federal Reserve focuses on the inflation rate based on the ________ rather than the CPI; to measure the underlying trend in inflation,it focuses on the ________.

In 1975,Richard Petty won the NASCAR race in Richmond,earning $6265.In 2006,Dale Earnhardt,Jr.,won the race,earning $239,166.The CPI index was 52.5 in 1975 and 198.7 in 2006 (base year = 1982-1984).Calculate the real earnings (based on base year 1982-1984)of both Petty and Earnhardt.

By Marks buys a one-year German government bond (called a bund) for $400.He receives principal and interest totaling $436 one year later.During the year the CPI rose from 150 to 162.The nominal interest rate on the bond was ,and the real interest rate was .

In 2008,inflation exceeded expected inflation.In 2009,expected inflation exceeded inflation.Therefore the real interest rate was than the expected real interest rate in 2008 and the real interest rate was than the expected real interest rate in 2009.

The U.S.inflation rate in the 1960s and 1970s, in the 1980s,and in the 1990s and 2000s.

In 2008,expected inflation exceeded inflation.In 2009,inflation exceeded expected inflation.Therefore the real interest rate was than the expected real interest rate in 2008 and the real interest rate was than the expected real interest rate in 2009.

The Federal Reserve focuses on the inflation rate based on the rather than the CPI; to measure the underlying trend in inflation,it focuses on the .