The measure of the cost of a standard basket of goods and services in any period relative to the cost of the same basket of goods and services in the base year is called the:
B.consumption production index.
The consumer price index for the current year measures the cost of a standard basket in the ______ year relative to the cost of the same basket in the ______ year.
The CPI is a measure of the:
B.price of a specific good or service.
C.rate of inflation.
D.average level of prices relative to prices in the base year.
Suppose that the total expenditures for a typical household in 2000 equaled $2,500 per month, while the cost of purchasing exactly the same items in 2005 was $3,000. If 2000 is the base year, the CPI for 2000 equals:
A CPI that equals 1.34 in 2005 (when 2000 is the base year) means that:
A.prices in 2005 are 34 percent higher than in 2004.
B.the CPI equals $1.34 in 2005.
C.the inflation rate in 2005 is 134 percent.
D.the average level of prices is 34 percent higher in
In 1929, the CPI equaled 0.171 and in 1930, the CPI equaled 0.167. These data provide evidence of a period of:
The core rate of inflation excludes food and energy prices because:
A.these prices don't change very frequently.
B.these prices are most frequently responsible for short-run fluctuations in the inflation rate.
C.consumers do not directly face these prices
A quantity measured in terms of current dollar value is called a(n) ______ quantity.
The price of a gallon of gasoline at the pump increased by 10 percent at the same time that the inflation rate was 15 percent. The nominal price of gasoline _____, and the real price of gasoline _____.
A.increased; also increased
In New Zealand, population increased from 1 million to 1.1 million, the number of employed workers increased from 500,000 to 600,000, but average labor productivity decreased from $20,000 per worker per year to $19,000 per worker per year. Total output in
The wage paid to workers measured in terms of real purchasing power is called the:
B.cost of living.
The real wage is the wage:
A.measured in current dollars.
B.required to maintain a minimum standard of living.
C.employers are required to pay workers.
D.measured in terms of purchasing power
If workers received a 5 percent wage increase and the rate of inflation was 10 percent, then their real wage:
D.equaled the nominal wage.
If workers received a 5 percent wage increase and the rate of inflation was 3 percent, then their real wage:
D.equaled the nominal wage.
A report indicated that the average real wage in manufacturing declined by 2% between 1990 and 2000. If the CPI equaled 1.30 in 1990, 1.69 in 2000, and the average nominal wage in manufacturing was $35 in 2000, what was the average nominal wage in manufac
A factory worker earned $10 an hour in 1980. The CPI was 0.82 in 1980. The same factory worker was earning $15 an hour in 1990 when the CPI was 1.31. From 1980 to 1990, the factory worker's hourly real wage:
A.increased from $7.63 to $18.29.
The practice of increasing a nominal quantity each period by an amount equal to the percentage increase in a specified price index is called:
A.a substitution bias.
B.the Fisher effect.
Indexing is the process of:
A.dividing a real quantity by a price index.
B.dividing a nominal quantity by a price index.
C.increasing a nominal quantity by an amount equal to the percentage change in a price index.
D.increasing a real quantity by an amoun
To ensure that your salary maintains its real purchasing power from year to year, your nominal salary must be:
If you wish to maintain a constant purchasing power when you retire, you should choose retirement income options that are:
______ is an increase in the price level, while ______ is an increase in the price of one good in comparison to other goods and services.
B.A relative price increase; inflation
D.Inflation; a relativ
Inflation makes it difficult to distinguish relative price changes from changes in the general level of prices. Consequently, inflation ______ the efficiency of the market system.
C.does not change
D.may either increase or decrease
Inflation ______ the signals sent by price changes to demanders and suppliers of goods and services.
D.has no impact on
The phenomenon known as ______ occurs when inflation causes people to pay an increasing percentage of their income in taxes even when their real incomes have not changed.
C.the Fisher effect
To prevent people paying a higher percentage of their income in taxes even when their real incomes have not changed, Congress:
A.implemented a flat tax.
B.reduced the capital gains tax.
C.indexed the income tax brackets to the CPI.
D.deflated the income t
The shoe leather costs of inflation include all of the following EXCEPT:
A.the lost purchasing power of cash.
B.the extra costs incurred to avoid holding cash.
C.the cost of more frequent trips to the bank.
D.the installation of a new cash management syst
The extra costs incurred to avoid holding cash when there is inflation are called the:
A.average costs of inflation.
B.consumer price index costs.
D.shoe leather costs
Making more frequent, but smaller cash withdrawals from banks ______ the inflation losses from holding cash and ______ the shoe leather costs of inflation.
C.reduces; has no impact on
As the rate of inflation increases, the increased cost to a consumer of more frequent trips to the bank to make cash withdrawals represents an increase in the:
A.shoe leather costs of inflation.
B.erosion of the purchasing power of cash.
If workers and employers agree to a three-year wage contract under the expectation of 3% inflation, and inflation turns out to be 5%, then:
A.workers gain and employers gain.
B.workers gain and employers lose.
C.workers lose and employers gain.