Question 1

Between 2015 and 2016,the CPI of a small nation rose from 182 to 185.If household incomes rose by 3% during that period of time,which of the following is true?
A)The purchasing power of household income rose between 2015 and 2016.
B)The purchasing power of household income fell between 2015 and 2016.
C)The purchasing power of household income remained constant between 2015 and 2016.
D)The CPI cannot be used to determine how the purchasing power of household income changes over time.

Accepted Answer

When the CPI increases, the cost of goods and services also increase. However, if household incomes increase at a faster rate than the CPI, then the purchasing power of household income increases. In this case, household incomes rose by 3% while the CPI only rose by 1.65% (185-182/182), indicating an increase in purchasing power.

Question 2

Table 9-20
  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 2015.
Source: USA Today Salaries Database,http://www.usatoday.com/sports/mlb/yankees/salaries/2015/team/all/
-Refer to Table 9-20.Calculate the real median salary of the New York Yankees in both 1982-1984 dollars and 2015 dollars.Calculate the percentage increase in the median salary of the Yankees from 1989 to 2015 in both nominal terms and in real terms.

Accepted Answer

The answer of Table 9-20
  Salaries in major league...

Question 3

To obtain real average hourly earnings,nominal average hourly earnings are multiplied by the CPI.

Accepted Answer

To obtain real average hourly earnings, nominal average hourly earnings are divided by the Consumer Price Index (CPI) and then usually multiplied by 100 to convert to an index. This adjusts for inflation and reflects the purchasing power of earnings.

Question 4

Table 9-19
 
-Refer to Table 9-19.Looking at the table above,what is the approximate rate of growth of real average hourly earnings from 2014 to 2015?
A)15%
B)4.4%
C)-1.5%
D)-4.8%

Accepted Answer

The answer of Table 9-19
 
-Refer to Table 9-19.Looking at...

Question 5

Imagine that you borrow $5,000 for one year and at the end of the year you repay the $5,000 plus $600 of interest.If the inflation rate was 4%,what was the real interest rate you paid?
A)16 percent
B)12 percent
C)8 percent
D)6 percent

Accepted Answer

The answer of Imagine that you borrow $5,000 for one...

Question 6

Table 9-21
  Source: Energy Information Administration
-Refer to Table 9-21.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 9-21
  Source: Energy Information Administration
-Refer...

Question 7

The CPI in 2010 was 218,while the CPI in 1980 was 82.If you had $5,000 in 1980,its equivalent purchasing power in 2008 would be $10,850.

Accepted Answer

The answer of The CPI in 2010 was 218,while the...

Question 8

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

Accepted Answer

This is true. The Bureau of Labor Statistics calculates the CPI based on the average of prices in the years 1982 to 1984, which are set as the base period with an index value of 100. Prices in subsequent years are then compared to this base period to determine the percentage change in prices over time.

Question 9

The nominal interest rate equals the real interest rate ________ the inflation rate.
A)times
B)divided by
C)plus
D)minus

Accepted Answer

The nominal interest rate is equal to the real interest rate plus the inflation rate. This is because the nominal interest rate is the rate at which money is borrowed or lent, which includes compensation for both the real interest rate (the compensation for foregoing consumption) and the expected inflation rate (the compensation for the decrease in the real value of the money lent or borrowed). Therefore, the real interest rate is found by subtracting the inflation rate from the nominal interest rate.

Question 10

If the nominal rate of interest is 6.5% and the inflation rate is 3.0%,what is the real rate of interest?
A)-9.5%
B)-3.5%
C)1.5%
D)3.5%
E)9.5%

Accepted Answer

Real rate of interest = Nominal rate of interest - Inflation rate
= 6.5% - 3.0%
= 3.5%

Question 11

Table 9-23
 
-Refer to Table 9-23.The table above lists the actual minimum wage and CPI in 1974 and in 2012.Using the above table,calculate the real minimum wage for 1974 and 2012.Calculate the rate of growth of the real minimum wage from 1974 to 2012.Are workers better off in terms of the purchasing power of a dollar in 1974 or 2012? Explain why.

Accepted Answer

The answer of Table 9-23
 
-Refer to Table 9-23.The table...

Question 12

Table 9-18
 
-Refer to Table 9-18.Looking at the table above,what is the rate of growth of real average hourly earnings from 2015 to 2016?
A)7.8%
B)6.25%
C)4%
D)-4%

Accepted Answer

The rate of growth of real average hourly earnings from 2015 to 2016 is 7.8%.

Question 13

Table 9-22
 
-Refer to Table 9-22.Using the above table,calculate real average hourly earnings for 2014,2015,and 2016.Calculate the rate of growth of real average hourly earnings from 2015 to 2016.

Accepted Answer

The answer of Table 9-22
 
-Refer to Table 9-22.Using the...

Question 14

Table 9-19
 
-Refer to Table 9-19.Looking at the table above,what is the rate of growth of the average price level from 2015 to 2016?
A)1%
B)2%
C)3.5%
D)4.76%
E)5.25%

Accepted Answer

The rate of growth of the average price level from 2015 to 2016 is 4.76%. This can be calculated by taking the difference between the average price level in 2016 and the average price level in 2015, and then dividing that difference by the average price level in 2015.

Question 15

Table 9-19
 
-Refer to Table 9-19.Looking at the table above,what is the rate of growth of the average price level from 2014 to 2015?
A)1%
B)2%
C)3%
D)4%
E)5%

Accepted Answer

The answer of Table 9-19
 
-Refer to Table 9-19.Looking at...

Question 16

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

Accepted Answer

Nominal income is the amount of money you earn before taking inflation into account. Real income is the amount of purchasing power your nominal income has in today's dollars. Therefore, if the CPI (Consumer Price Index) is less than 100, it means that prices are lower than they were in a previous year used as a base year for CPI calculation. In this case, real income would be greater than nominal income. Hence, the statement is false.

Question 17

Suppose you borrow $1,000 at an interest rate of 12 percent.If the expected real interest rate is 5 percent,then the rate of inflation over the upcoming year that would be most beneficial to you would be a rate of inflation
A)equal to 0 percent.
B)greater than 7 percent.
C)equal to 7 percent.
D)less than 7 percent.

Accepted Answer

The most beneficial rate of inflation for a borrower is one that is higher than the difference between the nominal interest rate (12 percent) and the expected real interest rate (5 percent), which is 7 percent. A higher inflation rate reduces the real value of the money repaid, benefiting the borrower.

Question 18

The stated interest rate on a loan is the
A)real interest rate.
B)nominal interest rate.
C)actual inflation rate.
D)expected inflation rate.

Accepted Answer

The stated interest rate on a loan is the nominal interest rate, which is the rate of interest without any adjustment for inflation or compounding. Real interest rate considers the inflation rate, while actual inflation rate and expected inflation rate are not related to the stated interest rate on a loan.

Question 19

The real interest rate equals the nominal interest rate ________ the inflation rate.
A)times
B)divided by
C)plus
D)minus

Accepted Answer

The real interest rate is calculated by subtracting the inflation rate from the nominal interest rate.

Question 20

Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest.If the inflation rate was 7%,what was the real interest rate you paid?
A)17 percent
B)10 percent
C)7 percent
D)3 percent

Accepted Answer

The real interest rate is the nominal interest rate minus the inflation rate.

Nominal interest rate = $100/$1000 = 0.1 or 10%
Inflation rate = 7%

Real interest rate = nominal interest rate - inflation rate = 10% - 7% = 3%

Quiz 9: Unemployment and Inflation

Between 2015 and 2016,the CPI of a small nation rose from 182 to 185.If household incomes rose by 3% during that period of time,which of the following is true?

To obtain real average hourly earnings,nominal average hourly earnings are multiplied by the CPI.

Table 9-19 -Refer to Table 9-19.Looking at the table above,what is the approximate rate of growth of real average hourly earnings from 2014 to 2015?

Imagine that you borrow $5,000 for one year and at the end of the year you repay the $5,000 plus $600 of interest.If the inflation rate was 4%,what was the real interest rate you paid?

The CPI in 2010 was 218,while the CPI in 1980 was 82.If you had $5,000 in 1980,its equivalent purchasing power in 2008 would be $10,850.

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

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

If the nominal rate of interest is 6.5% and the inflation rate is 3.0%,what is the real rate of interest?

Table 9-18 -Refer to Table 9-18.Looking at the table above,what is the rate of growth of real average hourly earnings from 2015 to 2016?

Table 9-22 -Refer to Table 9-22.Using the above table,calculate real average hourly earnings for 2014,2015,and 2016.Calculate the rate of growth of real average hourly earnings from 2015 to 2016.

Table 9-19 -Refer to Table 9-19.Looking at the table above,what is the rate of growth of the average price level from 2015 to 2016?

Table 9-19 -Refer to Table 9-19.Looking at the table above,what is the rate of growth of the average price level from 2014 to 2015?

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

Suppose you borrow $1,000 at an interest rate of 12 percent.If the expected real interest rate is 5 percent,then the rate of inflation over the upcoming year that would be most beneficial to you would be a rate of inflation

The stated interest rate on a loan is the

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

Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest.If the inflation rate was 7%,what was the real interest rate you paid?