CPI, and Inflation

What is the formula to calculate the inflation rate?

• [(Ending index – Beginning index) / Beginning Index] X 100

• [(Beginning index – Ending index) / Ending Index] X 100

• [(Ending index + Beginning index) / 2] X 100

• [(Ending index / Beginning index) – 1] X 100

According to the table, how many gallons of gasoline are included in the market basket for each year?

• 2 gallons

• 5 gallons

• 10 gallons

• 20 gallons

If the price per unit of blue jeans in Year 2 is $15.50 and there are 2 pairs in the basket, what is the total cost for blue jeans in Year 2?

• $12.00

• $15.50

• $31.00

• $30.00

Using the formula for Real GDP (Real GDP = Nominal GDP / (GDP Deflator/100)), what is the Real GDP in Year 3 if the Nominal GDP is $5000 and the GDP Deflator is 125?

• $4000

• $6250

• $5000

• $4500

If the total cost of the market basket in Year 1 is $32.50 and in Year 2 is $38.10, what is the Consumer Price Index (CPI) for Year 2 using Year 1 as the base year? (CPI = (Cost of Basket in Current Year / Cost of Basket in Base Year) x 100)

• 117.2

• 100.0

• 85.3

• 92.5

An increase in the CPI from 200 to 225 would indicate an annual rate of measured inflation of:

• 1.3%

• 12.5%

• 25%

• 200%

• 225%

The price index for the current year is 180. This means that, on average, prices in the current year are:

• $0.80 higher than prices in the base year.

• $1.80 higher than prices in the base year.

• 80 percent of prices in the base year.

• 180% higher than base year prices.

• 80% higher than base year prices.

Inflation benefits people who:

• lend at fixed interest rates.

• receive fixed incomes.

• save at fixed interest rates.

• borrow at fixed interest rates.

• borrow at variable interest rates.

The real interest rate equals:

• the nominal interest rate plus the rate of expected inflation.

• the nominal interest rate divided by the rate of expected inflation.

• the rate of expected inflation minus the nominal interest rate.

• the nominal interest rate minus the rate of unexpected inflation.

• the nominal interest rate minus the rate of expected inflation.

In 2000 the nominal rate of interest was 7 percent. The rate of inflation was 2.7 percent. The real rate of interest was:

• 9.7 percent.

• 7 percent.

• 4.3 percent.

• 2.7 percent.