Measuring the Cost of Living 181
105.
If the nominal interest rate is 4 percent and the real interest rate is 7 percent, then the inflation
rate is
a.
-3 percent.
b.
0.75 percent.
c.
3 percent.
d.
11 percent.
106.
If the nominal interest rate is 5 percent and the real interest rate is 7 percent, then the inflation
rate is
a.
-2 percent.
b.
0.4 percent.
c.
2 percent.
d.
12 percent.
107.
If the nominal interest rate is 5 percent, and the rate of inflation is 3 percent, then the real
interest rate is equal to
a.
2 percent.
b.
0.6 percent.
c.
1.7 percent.
d.
15 percent.
108.
The consumer price index was 120 in 2013 and 126 in 2014. The nominal interest rate during this
period was 8
percent. What was the real interest rate during this period?
a.
3 percent
b.
2 percent
c.
3.3 percent
d.
12.8 percent
109.
The consumer price index was 225 in 2008 and 232.2 in 2009. The nominal interest rate during
this period was 6.5
percent. What was the real interest rate during this period?
a.
1.6 percent
b.
3.3 percent
c.
5.1 percent
d.
7.4 percent
110.
Suppose the consumer price index was 184 in 2009 and 198.17 in 2010. The nominal interest rate
during this period
was 5.8 percent. What was the real interest rate during this period?
a.
0.4 percent
b.
1.2 percent
c.
–1.9 percent
d.
–2.6 percent
111.
During a certain year, the nominal interest rate was 8 percent, the real interest rate was 3
percent, and the CPI
was 176.7 at the beginning of the year. The CPI at the end of the year was
a. 196.1.
b. 185.5.
c. 168.3.
d. 159.2.
112.
During a certain year, the nominal interest rate was 7 percent, the real interest rate was 4
percent, and the CPI
was 198.3 at the end of the year. The CPI at the beginning of the year was
a. 204.2
b. 192.5
c. 178.6
d. 220.1
113.
During a certain year, the consumer price index increased from 120 to 132 and the purchasing
power of a person’s bank account increased by 4 percent. For that year,
a.
the nominal interest rate was 6 percent.
b.
the nominal interest rate was 14 percent.
c.
the inflation rate was 12 percent.
d.
the inflation rate was 9 percent.
114.
The CPI was 220 in 2012 and 231 in 2013. Phil borrowed money in 2012 and repaid the loan in
2013. If the nominal
interest rate on the loan was 10 percent, then the real interest rate was
a.
-5 percent.
b.
-1 percent.
c.
5 percent.
d.
3.2 percent.
115.
Suppose that over the past year, the real interest rate was 3 percent and the inflation rate was 1
percent. It follows
that
a.
the dollar value of savings increased at 2 percent, and the purchasing power of savings
increased at 3
percent.
b.
the dollar value of savings increased at 2 percent, and the purchasing power of savings
increased at 4
percent.
c.
the dollar value of savings increased at 4 percent, and the purchasing power of savings
increased at 2
percent.
d.
the dollar value of savings increased at 4 percent, and the purchasing power of savings
increased at 3
percent.
116.
Suppose that over the past year, the real interest rate was 6 percent and the inflation rate was -2
percent. It follows
that
a.
the dollar value of savings increased at 4 percent, and the purchasing power of savings
increased at 6
percent.
b.
the dollar value of savings increased at 4 percent, and the purchasing power of savings
increased at 8
percent.
c.
the dollar value of savings increased at 8 percent, and the purchasing power of savings
increased at 4
percent.
d.
the dollar value of savings increased at 8 percent, and the purchasing power of savings
increased at 6
percent.
117.
Suppose that over the past year, the real interest rate was 5 percent and the inflation rate was 3
percent. It follows
that
a.
the dollar value of savings increased at 5 percent, and the purchasing power of savings
increased at 2
percent.
b.
the dollar value of savings increased at 5 percent, and the purchasing power of savings
increased at 8
percent.
c.
the dollar value of savings increased at 8 percent, and the purchasing power of savings
increased at 2
percent.
d.
the dollar value of savings increased at 8 percent, and the purchasing power of savings
increased at 5
percent.
118.
Suppose that over the past year, the real interest rate was 6 percent and the inflation rate was 4
percent. It follows
that
a.
the dollar value of savings increased at 6 percent, and the purchasing power of savings
increased at 2
percent.
b.
the dollar value of savings increased at 6 percent, and the purchasing power of savings
increased at 10
percent.
c.
the dollar value of savings increased at 10 percent, and the purchasing power of savings
increased at 2
percent.
d.
the dollar value of savings increased at 10 percent, and the purchasing power of savings
increased at 6
percent.
119.
Suppose that over the past year, the nominal interest rate was 5 percent, the CPI was 150.3 at
the end of the year,
and the CPI was 144.2 at the beginning of the year. It follows that
a.
the dollar value of savings increased at 5 percent, and the purchasing power of savings
increased at 0.8
percent.
b.
the dollar value of savings increased at 5 percent, and the purchasing power of savings
increased at 9.2
percent.
c.
the dollar value of savings increased at 0.8 percent, and the purchasing power of savings
increased at 5
percent.
d.
the dollar value of savings increased at 9.2 percent, and the purchasing power of savings
increased at 5
percent.
120.
Suppose that over the past year, the real interest rate was 3 percent, the CPI was 126.2 at the
beginning of the
year, and the CPI was 129.5 at the end of the year. It follows that
a.
the dollar value of savings increased at 5.6 percent, and the purchasing power of savings
increased at 3
percent.
b.
the dollar value of savings increased at 0.4 percent, and the purchasing power of savings
increased at 3
percent.
c.
the dollar value of savings increased at 3 percent, and the purchasing power of savings
increased at 5.6
percent.
d.
the dollar value of savings increased at 3 percent, and the purchasing power of savings
increased at 0.4
percent.
121.
Sophia puts money in the bank and earns a 5 percent nominal interest rate. If the inflation rate is
2 percent, then
after one year,
a.
Sophia will have 3 percent more money, which will purchase 5 percent more goods.
b.
Sophia will have 3 percent more money, which will purchase 7 percent more goods.
c.
Sophia will have 5 percent more money, which will purchase 3 percent more goods.
d.
Sophia will have 5 percent more money, which will purchase 7 percent more goods.
122.
Corey deposits $1,000 in a savings account that pays an annual interest rate of 5 percent. Over
the course of a
year, the inflation rate is 1.7 percent. At the end of the year, Corey has
a.
$17 more in his account, and his purchasing power has increased by $10.
b.
$30 more in his account, and his purchasing power has increased by $50.
c.
$40 more in his account, and his purchasing power has increased by $33.
d.
$50 more in his account, and his purchasing power has increased by $33.
123.
Rosa deposits $100 in a bank account that pays an annual interest rate of 20 percent. A year
later, after Rosa has
accumulated $20 in interest, she withdraws her $120. Rosa’s purchasing
power
a.
did not change if the inflation rate was 20 percent.
b.
decreased if the inflation rate was -5 percent.
c.
increased if the inflation rate was 22 percent.
d.
More than one of the above is correct.
124.
Jake loaned Elwood $5,000 for one year at a nominal interest rate of 10 percent. After Elwood
repaid the loan in
full, Jake complained that he could buy 4 percent fewer goods with the money
Elwood gave him than he could
before he loaned Elwood the $5,000. From this, we can
conclude that the rate of inflation during the year was
a.
-4 percent.
b.
4 percent.
c.
6 percent.
d.
14 percent.
125.
Ms. Lane borrowed $1,000 from her bank for one year at an interest rate of 10 percent. During
that year, the price
level went up by 15 percent. Which of the following statements is correct?
a.
Ms. Lane will repay the bank fewer dollars than she initially borrowed.
b.
Ms. Lane’s repayment will give the bank less purchasing power than it originally loaned her.
c.
Ms. Lane’s repayment will give the bank greater purchasing power than it originally loaned
her.
d.
Ms. Lane’s repayment will give the bank the same purchasing power that it originally loaned
her.
126.
Which of the following is not correct?
a.
The U.S. economy has never experienced deflation.
b.
Since 1965, the U.S. nominal interest rate has exceeded the U.S. real interest rate.
c.
Since 1965, the U.S. economy has experienced rising consumer prices in most years.
d.
During deflation, the real interest rate exceeds the nominal interest rate.
127.
Which of the following is correct?
a.
Nominal and real interest rates always move together.
b.
Nominal and real interest rates never move together.
c.
Nominal and real interest rates do not always move together.
d.
Nominal and real interest rates always move in opposite directions.
128.
In the United States in the late 1970s, nominal interest rates were high and inflation rates were
very high. As a
result, real interest rates were
a.
very high.
b.
high.
c.
low, but never negative.
d.
low, and in some years they were negative.
129.
In the United States, nominal interest rates were
a.
high in the 1970s and 1990s.
b.
low in the 1970s and 1990s.
c.
high in the 1970s and low in the 1990s.
d.
low in the 1970s and high in the 1990s.
130.
In the United States, real interest rates were
a.
high in the 1970s and 1990s.
b.
low in the 1970s and 1990s.
c.
high in the 1970s and low in the 1990s.
d.
low in the 1970s and high in the 1990s.
131.
A worker received $5 for a daily wage in 1930. What is the value of that wage today if the CPI
was 17 in 1930 and
is 230 today?
a.
37 cents
b.
b. $4.63
c. $67.65
d. $37.86
132.
A worker received $5 for a daily wage in 1930, which has the equivalent value of $63.24 today.
If the CPI was 17
in 1930 what is the value of the CPI today, rounded to the nearest whole
number?
a.
215
b.
134
c.
17
d.
1.3
133.
The consumer price index was 200 in 2012 and 208 in 2013. The nominal interest rate during this
period was 9
percent. What was the real interest rate during this period?
a.
5.00 percent
b.
1.00 percent
c.
5.15 percent
d.
13.00 percent
134.
The consumer price index was 200 in 2008 and 190 in 2009. The nominal interest rate during this
period was 4.5
percent. What was the real interest rate during this period?
a.
– 0.75 percent
b.
– 0.5 percent
c.
9.5 percent
d.
9.75 percent
135.
The nominal interest rate for a consumer loan lasting from 2007 to 2008 is 8.5 percent and the
real interest rate is 4.5 percent. If the consumer price index was 200 in 2007, what would the
consumer price index value be in 2008?
a. 192
b. 208
c. 209
d. 217
136.
When looking at a graph of nominal and real interest rates you notice that nominal rates always
lie above real rates. From this you conclude
a.
there were serious episodes of deflation in the time frame represented on the graph.
b.
consumer prices were always rising in the time frame represented on the graph.
c.
the economy never experienced a recession in the time frame represented on the graph.
d.
GDP was always increasing for the time frame represented on the graph.
137.
When looking at a graph of nominal and real interest rates you notice the graph for nominal rates
and the graph for
real rates cross each other many times. From this you conclude
a.
consumer prices sometimes rose and sometimes fell in the time frame represented on the
graph.
b.
consumer prices were always rising in the time frame represented on the graph.
c.
the economy never experienced a recession in the time frame represented on the graph.
d.
GDP was always increasing for the time frame represented on the graph.
True/False and Short Answer
1.
The consumer price index is used to monitor changes in an economy’s production of goods and
services over time.
a.
True
b.
False
2.
When the consumer price index falls, the typical family has to spend fewer dollars to maintain the
same standard of
living.
a.
True
b.
False
3.
Economists use the term inflation to describe a situation in which the economy’s overall price level
is rising.
a.
True
b.
False
4.
The inflation rate is the absolute change in the price level from the previous period.
a.
True
b.
False
5.
Inflation can be measured using either the GDP deflator or the consumer price index.
a.
True
b.
False
6.
The inflation rate reported in the news is usually calculated from the GDP deflator rather than the
consumer price
index.
a.
True
b.
False
7.
Because the consumer price index reflects the goods and services bought by consumers better
than the GDP
deflator does, it is the more common gauge of inflation.
a.
True
b.
False
8.
The CPI is a measure of the overall cost of the goods and services bought by a typical consumer.
a.
True
b.
False
9.
Each week, the Bureau of Labor Statistics computes and reports the consumer price index.
a.
True
b.
False
10.
The Bureau of Labor Statistics is part of the U.S. Department of Labor.
a.
True
b.
False