Tutorial 3 - Multiple Choices

Inflation can be measured by all of the following except the

• GDP deflator.

• Producer price index.

• Consumer price index.

• Finished goods price index.

• All of the above are used to measure inflation.

The CPI will be most influenced by a 10 percent increase in the price of which of the following consumption categories?

• housing

• medical care

• transportation

• food and beverages

• All of the above would produce the same impact.

In 1989, the CPI was 124.0. In 1990 it was 130.7. What was the rate of inflation over this period?

• 5.1 percent

• 5.4 percent

• 30.7 percent

• 6.7 percent

• You can't tell without knowing the base year

Which of the following would likely cause the CPI to rise more than the GDP deflator?

• an increase in the price of Fords

• an increase in the price of tanks purchased by the military

• an increase in the price of domestically produced fighter planes sold exclusively to Israel

• an increase in the price of Hondas produced in Japan and sold in the United States

• an increase in the price of Jhon Deere tractors

The “basket” on which the CPI is based is composed of

• Raw materials purchased by firms.

• Total current production.

• Products purchased by the typical consumer.

• Consumer production.

• None of the above.

If there is an increase in the price of apples that causes consumers to purchase fewer pounds of apples and more pounds of oranges, the CPI will suffer from

• Substitution basis

• Bias due to the introduction of new goods.

• Base-year bias.

• Bias due to unmeasured quality change.

• None of the above.

Suppose your income rises from $19,000 to $31,000 while the CPI rises from 122 to 169. Your standard of living has likely

• Fallen.

• Risen.

• Stayed the same.

• You can’t tell without knowing the base year.

If the nominal interest rate is 7 percent and the inflation rate is 3 percent, then the real interest rate is

• -4 percent.

• 3 percent

• 10 percent.

• 4 percent.

• 21 percent.

Which of the following statements is correct?

• The real interest rate is the sum of the nominal interest rate and the inflation rate.

• The real interest rate is the nominal interest rate minus the inflation rate.

• The nominal interest rate is the inflation rate minus the real interest rate.

• The nominal interest rate is the real interest rate minus the inflation rate.

• None of the above is true.

If inflation is 8 percent and the real interest rate is 3 percent, then the nominal interest rate should be

• 3/8 percent.

• 5 percent.

• 11 percent.

• 24 percent.

• -5 percent.