1102E - CHAPTER 4 - INFLATION

Inflation is an increase in

• the price of one item.
• the overall price level.
• the average income level.
• real gross national product.

Deflation is a decrease in

• the price of one item.
• the overall price level.
• the average income level.
• real gross national product.

Suppose 2006 is the base year. CPI in 2006 is

• 1,000.
• 100.
• 10,000.
• 10

If 2006 is the base year, CPI in 2005 is

• 96.0.
• 104.0.
• 111.9.
• 89.3.

If 2006 is the base year, CPI in 2007 is

• 93.9.
• 106.1.
• 94.2.
• 105.8.

If 2006 is the base year, CPI in 2008 is

• 81.2.
• 118.8.
• 123.2.
• 86.8.

If 2006 is the base year, the inflation rate between 2006 and 2007 is

• 3.9%.
• 10.2%.
• 7.4%.
• 6.1%.

If 2006 is the base year, the inflation rate between 2007 and 2008 is ________ %.

• 13.9
• 16.1
• 17.1
• 10.4

The CPI in period 1 is 300 and the CPI in period 2 is 150. The rate of inflation between period 1 and period 2 is

• -50%.
• -100%.
• 33.33%.
• -60%.

If Mr. Garrison is paid an interest rate of 4% on his savings, but the inflation rate is 7%, the real interest rate Mr. Garrison earns is

• 4%.
• -3%.
• -7%.
• 28%.