Exam 11: Measuring the Cost of Living: Part B

If the nominal interest rates rises,then the inflation rate must have increased.

Price indexes allow comparisons of dollar figures over time and provide us a sense of how the economy is changing.

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.

When a new good is introduced,consumers have more variety from which to choose,and this in turn increases the cost of maintaining the same level of economic well-being.

Each week,the Bureau of Labor Statistics computes and reports the consumer price index.

When some dollar amount is automatically corrected for inflation by law or contract,the amount is said to be indexed for inflation.

The Bureau of Labor Statistics surveys consumers to determine a fixed basket of goods.

Data from the Bureau of Labor Statistics show that consumer spending on medical care is about equal to consumer spending on housing.

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.

The consumer price index is used to monitor changes in an economy's production of goods and services over time.

The inflation rate for 2007 is computed by dividing (the CPI in 2007 minus the CPI in 2006)by the CPI in 2006,then multiplying by 100.

The producer price index measures the cost of a basket of goods and services bought by firms rather than consumers.

It is possible to observe a positive nominal interest rate together with a negative real interest rate.

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.

The inflation rate reported in the news is usually calculated from the GDP deflator rather than the consumer price index.

The group of goods and services used to compute the GDP deflator changes automatically over time,but the group of goods and services used to compute the CPI does not.

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.

The real interest rate tells you how fast the purchasing power of your bank account rises over time.

The purpose of measuring the overall level of prices in the economy is to permit comparison between dollar figures from different times.

The CPI is a measure of the overall cost of the goods and services bought by a typical consumer.