Inflation

Inflation is best defined as an increase in ______

• the value of money

• the average level of prices

• the price of one good

• the purchasing power of money

In the U.S., inflation is measured with a statistic called CPI, which stands for ______.

• Consumption Price Inflation

• Consumer Price Index

• Collusive Purchasing Index

• Customer Power Inflation

Suppose the "market basket" of goods and services used to calculate CPI had a weighted cost of $4,000 in the base period. This year, that same basket has a weighted cost of $8,000. What is this year's CPI? (There should be no symbols in the answer; just write the number)

If CPI increased from 200 to 202 over the course of one year, the inflation rate that year was ___% (Just write the number)

In the long run, inflation is most directly caused by _____.

• increases in population

• improvements in technology

• increases in the money supply

• increases in life expectancy

Extremely high inflation is known as __________.

• megainflation

• uberinflation

• hyperinflation

• superinflation

Which of the following countries has NOT experienced hyperinflation? (at least not yet anyway...)

• Zimbabwe

• Germany

• United States

• Venezuela

Which of the following people would NOT necessarily be hurt by unexpectedly high inflation?

• Lisa, a retired senior citizen who receives a fixed $1,000 pension every month.

• Mr. Fenton, who borrowed $60,000 at a fixed interest rate to go to law school

• Steve, who lent a friend $2,000 at a fixed interest rate last year.

• Tina, who has $20,000 in cash buried in her back yard.

Laura's boss gives her a 5% nominal raise on her salary. If the inflation rate during the year was 4%, her REAL raise was approximately ___% (just write the number).

Suppose you deposit all of your savings into an savings account that pays 2% interest (much higher than the national average!) and leave it there for one year. If inflation over that year is 5%, what is the REAL interest rate you earn on your savings?

• 3%

• 2%

• -5%

• -3%