Macroeconomics Lesson 6

Mia Denton was an accountant in 1943 and earned $21,000 that year. Her son is an accountant too and he earned $270,000 this year. Suppose the price index was 18.3 in 1943 and 20.2 in the current year.
Refer to Scenario 24-1. Mia's son current year income in 1944 dollars is

• $513,000.

• $244,604.

• $19,025.

• $298,033.

Suppose that in 2018, the producer price index increases by 1.5 percent. As a result, economists most likely will predict that:

• the producer price index will increase by more than 1.5 percent in 2019.

• interest rates will decrease in the future.

• the consumer price index will increase in the future.

• GDP will increase in 2019.

When ranking movies by nominal box office receipts, what important fact is overlooked?

• A) Movies and DVD are complements.

• B) There are no good substitutes for movies currently.

• C) Prices, including those for movie tickets, have been rising over time.

• D) More people go to movies now than in the past.

During periods of deflation, the nominal interest rate will be:

• lower than the real interest rate.

• the same as the real interest rate.

• higher than the real interest rate.

• possibly higher, lower, or the same as the real interest rate. The answer depends on how much deflation there is in the economy.

Which of the following statements is correct about the relationship between inflation and interest rates?

• In order to fully understand interest rates, we need to know how to correct for the effects of inflation.

• The interest rate is determined by the rate of inflation.

• In order to fully understand inflation, we need to know how to correct for the effects of interest rates.

• There is no relationship between inflation and interest rates.

One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called

• price-change neglect.

• relative bias.

• substitution bias.

• unmeasured quality change.

The real interest rate tells you

• the number of dollars in your bank account today.

• the purchasing power of your bank account today.

• how fast the number of dollars in your bank account rises over time.

• how fast the purchasing power of your bank account rises over time.

In 1931, President Herbert Hoover was paid a salary of $75,000. Government statistics show a consumer price index of 15.2 for 1931 and 237 for 2015. President Hoover's 1931 salary was equivalent to a 2015 salary of about

• $1,169,408.

• $4,965.

• $16,080,001.

• $1,057,894.

Table 24-3

The following table lists the per gallon prices of gas and milk for the months of September, October, and November. Assume that the typical consumer buys 100 gallons of gas and 7 gallons of milk each month, and that September is the base period.
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Refer to Table 24-3. What is the inflation rate for November?

• 4.81%

• 4.21%

• -4.39%

• 4.39%

Table 24-4
Will's expenditures on food for three consecutive years, along with other values, are presented in the following table.
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Refer to Table 24-4. Suppose Will's Year 2 food expenditures in Year 3 dollars amount to $5,610. Then x, the consumer price index for Year 3, has a value of

• 212.7

• 4,160

• 4,615

• 5,077