Exam 7: Inflation

Assume that the real rate of interest is 5 percent and a lender charges a nominal interest rate of 15 percent. If a borrower expects that the rate of inflation next year will be 10 percent and the actual rate of inflation next year is 10 percent,

Exhibit 7-1 Consumer Price Index As shown in Exhibit 7-1, the rate of inflation for Year 2 is:

Suppose the consumer price index (CPI)for Year X is 130. This means the average price of goods and services is:

Inflation psychosis and wage-price spirals are two types of hyperinflation.

Exhibit 7-2 Consumer Price Index As shown in Exhibit 7-2, the rate of inflation for Year 4 is:

Exhibit 7-1 Consumer Price Index As shown in Exhibit 7-1, the rate of inflation for Year 5 is:

If the consumer price index (CPI)in Year 1 was 200 and the CPI in Year 2 was 215, the rate of inflation was:

As inflation drives up prices, people attempt to find substitutes and adjust what they buy. The resulting substitution bias problem causes the CPI to:

During periods of inflation, the general price level of goods and services in the economy rises.

The consumer price index (CPI)includes only a market basket of goods and services purchased by the typical urban consumer.

Which of the following would understate the consumer price index?

When the inflation rate rises, the purchasing power of nominal income:

If the consumer price index in Year 1 was 200 and the CPI for Year 2 was 230, the rate of inflation was:

The Consumer Price Index compares the:

Real income in Year X is equal to:

Consider an economy with only two goods: bread and wine. In 1982, the typical family bought 4 loaves of bread at 50¢ per loaf and 2 bottles of wine for $9 per bottle. In Year X, bread cost 75¢ per loaf and wine cost $10 per bottle. The CPI for Year X (using a 1982 base year)is:

The substitution bias is believed to cause the consumer price index to:

Which one of the following groups benefits from inflation?

The real interest rate is defined as the:

Deflation means a decrease in: