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b.
False
46. Consumer price index = × 100.
a.
True
b.
False
47. When consumer spending is broken down into the major categories of goods and services, the largest single category
is spending on transportation.
a.
True
b.
False
48. The purpose of measuring the overall level of prices in the economy is to permit comparison between dollar figures
from different times.
a.
True
b.
False
49. A dollar figure from 1908 is converted into 2008 dollars by dividing the 2008 price level by the 1908 price level, then
multiplying by the 1908 dollar figure.
a.
True
b.
False
50. If the CPI today is 120 and the CPI five years ago was 80, then something that cost $1 five years ago would cost $1.50
in today's prices.
a.
True
b.
False
51. 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.
a.
True
b.
False
52. If you currently make $25,000 a year and the CPI rises from 110 today to 150 in five years, then you need to be
making $43,333.33 in five years to have kept pace with consumer price inflation.
a.
True
b.
False
53. When some dollar amount is automatically corrected for inflation by law or contract, the amount is said to be indexed
for inflation.
a.
True
b.
False
54. A COLA automatically raises the wage when the CPI rises.
a.
True
b.
False
55. The U.S. income tax system is completely indexed for inflation.
a.
True
b.
False
56. Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his
$105. If inflation was 2 percent during the year the money was deposited, then Bob’s purchasing power has increased by 3
percent.
a.
True
b.
False
57. Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his
$105. If inflation was 5 percent during the year the money was deposited, then Bob’s purchasing power has not changed.
a.
True
b.
False
58. Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his
$105. If inflation was 7 percent during the year the money was deposited, then Bob’s purchasing power has increased by 2
percent.
a.
True
b.
False
59. 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 5 percent during the year the money was deposited, then Bob’s purchasing power has not changed.
a.
True
b.
False
60. 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.
a.
True
b.
False
61. The real interest rate measures the change in dollar amounts.
a.
True
b.
False
62. The real interest rate is the interest rate corrected for inflation.
a.
True
b.
False
63. The nominal interest rate tells you how fast the number of dollars in your bank account rises over time.
a.
True
b.
False
64. The real interest rate tells you how fast the purchasing power of your bank account rises over time.
a.
True
b.
False
65. If the nominal interest rates rises, then the inflation rate must have increased.
a.
True
b.
False
66. If the nominal interest rate is 5 percent and the inflation rate is 2 percent, then the real interest rate is 7 percent.
a.
True
b.
False
67. If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation rate is 3 percent.
a.
True
b.
False
68. If the real interest rate is 5 percent and the inflation rate is 2 percent, then the nominal interest rate is 7 percent.
a.
True
b.
False
69. The value of the consumer price index increased from 140 to 147 during 2006. Nathan opened a bank account at the
beginning of 2006, and at the end of 2006 his account balance was $12,840. The purchasing power of Nathan’s account
increased by 2 percent during the year. We can conclude that Nathan opened his account with a deposit of $11,500 at the
beginning of 2006.
a.
True
b.
False
70. The U.S. economy has never experienced deflation.
a.
True
b.
False
71. In the late 1970s, U.S. nominal interest rates were high and real interest rates were low, but in the late 1990s, U.S.
nominal interest rates were low and real interest rates were high.
a.
True
b.
False
72. In a period of inflation real interest rates will be greater than nominal interest rates.
a.
True
b.
False
73. It is possible to observe a positive nominal interest rate together with a negative real interest rate.
a.
True
b.
False
74. In comparison to the situation in the late 1970s, the United States experienced lower nominal interest rates and higher
real interest rates in the late 1990s.
a.
True
b.
False
75. 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.
a.
True
b.
False
76. 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.
a.
True
b.
False
77. Price indexes allow comparisons of dollar figures over time and provide us a sense of how the economy is changing.
a.
True
b.
False
78. Persistent increases in the overall level of prices have been the norm.
a.
True
b.
False
79. Core CPI is a price index that only looks at the prices of food and energy and ignores the prices of all other goods and
services.
a.
True
b.
False
80. The PPI is a price index that measures the cost to consumers of a typical basket of goods sold by firms.
a.
True
b.
False
81. One advantage of using the CPI over the GDP Deflator is that the CPI updates the basket of goods used to compute
the index each month whereas the GDP Deflator maintains the same basket of goods for long periods of time.
a.
True
b.
False
82. Suppose the CPI in 1950 was 24.1 and the CPI in 1975 was 53.8. When Ken's income rose from $10,000 per year in
1950 to $20,000 per year in 1970, Ken's standard of living improved between 1950 and 1970.
a.
True
b.
False
83. During periods of deflation, the real interest rate will be lower than the nominal interest rate.
a.
True
b.
False
