Unit 2: Economic Indicators and the Business Cycle Pt.2

The Consumer Price Index (CPI)

• measures changes in the prices of all products

• measures the changes in the prices of all consumer goods

• measures consumer spending and the savings rate

• is one of several price indices that measures prices over time

• is negative when there is deflation

Which of the following is true regarding inflation?

• Unanticipated inflation benefits lenders

• Inflation decreases the purchasing power of a country's currency

• Inflation causes cyclical unemployment

• High inflation causes nominal interest rates to decrease

• High inflation causes the real GDP to increase

A slowdown in the rate of increase in price level is called

• disinflation

• hyperinflation

• deflation

• a recession

• inflationary expectations

Assume the prices of a specific market basket in the year 2010 was $200 and the price of the same market basket in the year 2015 was $240. What is the Consumer Price Index (CPI) of the year 2015 based on base year 2010 prices?

• 80

• 120

• 125

• 150

• 200

If the nominal GDP in a given year is $300 billion and the GDP deflator for that year is 120, how much is the real GDP?

• $600 billion

• $360 billion

• $300 billion

• $250 billion

• $240 billion

All of the following are criticisms of how the government measures the economy except

• Real GDP overstates economic growth since it doesn't account for changes in price level

• CPI doesn't included the newest, up-to-date, consumer goods

• CPI overstates inflation since consumers will buy lower priced substitute goods

• The official unemployment rate numbers don't include people that stopped looking for work

• Real GDP is a poor measure of standard of living because it doesn't show how income is distributed