ib econs chapter 20

What is inflation?

• A one-time increase in prices
• A sustained rise in the average price level
• A decrease in the money supply
• An increase in purchasing power

How is the inflation rate typically measured?

• GDP deflator
• Consumer Price Index (CPI)
• Producer Price Index (PPI)
• Unemployment rate

In the CPI, what does the base year index number represent?

• 90
• 100
• 50
• 200

If the CPI increases from 120 to 132, what is the inflation rate?

• 0.1
• 0.12
• 0.0909
• 0.08

What is the purpose of using statistical weights in CPI?

• To reflect the importance of each item in household spending
• To reduce the number of items in the basket
• To increase the base year index
• To eliminate inflation

In a weighted CPI calculation, if the price of a product with a higher weight increases, how does it affect the CPI?

• It has a larger impact on CPI
• It has a smaller impact
• No impact
• It decreases CPI

Calculate the inflation rate between 2019 (CPI 110) and 2020 (CPI 122.5).

• 0.1
• 0.1136
• 0.125
• 0.225

In the weighted CPI example, why was the inflation rate higher than in the unweighted example?

• Different base year
• Different quantities purchased
• Higher prices in 2020
• Different products in the basket

Which is NOT included in the CPI?

• Goods
• Services
• Stocks and bonds
• Housing costs

If the base year CPI is 100 and the current year CPI is 117, what is the inflation rate since the base year?

• 0.17
• 0.017
• 0.085
• 1.17