Economic Indicators 2.1-2.5

The country of Ambrosia calculates inflation using a consumer price index (CPI). Between 2016 and 2017 the CPI increased from 220 to 240.

What was the inflation rate between 2016 and 2017?

• 10%

• 20%

• 9%

• 7%

Which of the following best explains why the consumer price index (CPI) may not accurately measure changes in the cost of living?

• It doesn't include all prices, such as input costs to firms

• It does not account for changes in consumers' incomes

• It only includes goods purchased every day

• When prices of some goods go up, consumers buy less of those and more of goods that are cheaper

• 
  When real GDP increases, the CPI doesn't change

The table below shows quantities purchased and the prices of the only two goods citizens of Bloominonionland buy over three years.

What is the consumer price index for 2017 using 2016 as a base year?

• 75

• 67

• 150

• 50

• 120

The price of hamster food and many other consumer goods increased in Hamsterville. As a result, the CPI increased from 80 to 100.

What was the inflation rate in Hamsterville?

• 80%

• 25%

• 20%

• 33%

Which of the following best describes the consumer price index (CPI)?

• The change in prices that a consumer would have to pay for a fixed set of goods as a percentage of the same goods in a base year

• The cost of labor purchased by firms in a year divided by the cost of the same amount of labor in a base year expressed as a percentage

• 
  The cost inputs purchased by firms in a year divided by the price of the same inputs in a base year expressed as a percentage

• Real GDP produced in one year divided by the real value of that GDP in another year

• The dollars a person needs in order to buy a fixed collection of goods in a year, compared to a base year

The table below shows the consumer price index (CPI) over several years for Bloominonionland.

Which of the following conclusions can be drawn based on this data?

• Prices increased over all four years

• real GDP increased every year except between 2017 and 2018

• Prices increased between 2015 and 2017, but decreased between 2017 and 2018

• 2015 is the base year

• The bundle of goods changed each year

You borrow $200 from the First Bank of Westeros to purchase Kraken repellant. The bank charges a fixed nominal interest rate of 18% per year and you will repay them in one year. You and the bank both anticipate that there will be 7% inflation. However, after the loan agreement is signed, the rate of inflation turns out to be 9%.

Who is hurt by this unanticipated inflation, and why are they hurt by it?

• You are hurt because the value of what is repaid has decreased

• The bank is hurt because the value of what is repaid has increased

• You are hurt because the value of what is repaid has increased

• The bank is hurt because the value of what is repaid has decreased

• We cannot tell without more information

Which of the following agents would benefit from unanticipated inflation?

• Bran, whose nominal income is the same every month

• Ygritte, who loaned Robb money last year at 3%

• The soldiers of Westeros, who are paid wages based on the salary negotiated last year

• Grey Worm, who has $3,000 in student loan debt that has a fixed interest rate of 3.5%

• Olenna, who has stashed away money in a cave

Tyrion has managed to save up $1,000 which he has deposited in a Westeros Bank account that pays 4% interest.

Which of the following will be true if the actual inflation rate is lower than the expected inflation rate?

• We cannot tell without more information

• Tyrion would benefit; the bank would be worse off

• Tyrion and the bank would both benefit

• Both are worse off

• Neither benefit

Melisandre asks you to loan her $600 until next year. She offers to pay you 10% annual interest. You are very suspicious of her motives and believe she is trying to gain at your expense.

What does Melisandre expect about the inflation rate if you know she is trying to benefit at your expense?

• There will be no inflation at all

• The rate of inflation will be more than 10%

• The rate of inflation will equal 10%

• There will be deflation

• The rate of inflation will be less than 10%