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Exam 5: Inflation and the Price Level

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Question 71

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If both the lender and borrower agree on an 8% interest rate, both expect a 4% inflation rate, and inflation turns out to be 4%, then ______ by the inflation.

A) the borrower is hurt and the lender gains
B) the borrower gains and the lender is hurt
C) neither the borrower nor the lender are hurt
D) both the borrower and lender are hurt

E) A) and D)
F) All of the above

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Question 72

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A labor contract provides for a first-year wage of $10 per hour, and specifies that the real wage will rise by 3 percent in the second year of the contract and by another 3 percent in the third year.The CPI is 1.00 in the first year, 1.07 in the second year, and 1.15 in the third year.What dollar wage must be paid in the third year?

A) $10.61
B) $11.15
C) $12.20
D) $12.31

E) A) and B)
F) A) and C)

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Question 73

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The CPI is a measure of the:

A measurement in terms of current dollar value is called a(n) ______ quantity.

A report indicated that the average real wage in manufacturing declined by 2% between 1990 and 2000.If the CPI equaled 1.30 in 1990, 1.69 in 2000, and the average nominal wage in manufacturing was $35 in 2000, what was the average nominal wage in manufacturing in 1990?

The CPI in year one equaled 1.45.The CPI in year two equaled 1.51.The rate of inflation between years one and two was ______ percent.

Inflation ______ the signals sent by price changes to demanders and suppliers of goods and services.

A factory worker earned $10 an hour in 1980.The CPI was 0.82 in 1980.The same factory worker was earning $15 an hour in 1990 when the CPI was 1.31.From 1980 to 1990, the factory worker's hourly real wage:

Suppose the value of the CPI is 1.100 in year one, 1.160 in year two, and 1.270 in year three.Assume also that the price of computers increases by 3% between year one and year two, and by another 3% between year two and year three.The price level is increasing, the inflation rate is _______, and the relative price of computers is _________.

Indexing is the process of:

Assume one investor bought a 10-year inflation-protected bond with a fixed annual real rate of 1.5% and another investor bought a 10-year bond without inflation protection with a nominal annual return of 4.2%.If inflation over the 10-year period averaged 3%, which investor earned a higher real return?

A consumer expenditure survey reports the following information on consumer protein spending: Using 2005 as the base year, by how much does a "cost of protein" index increase between 2005 and 2006?

The real interest rate is the:

If the nominal interest rate is 10% and the inflation rate is 3%, then the real interest rate equals:

To ensure that a nominal payment represents a constant level of purchasing power over time, one should:

Suppose workers and employers agree to a three-year wage contract under the expectation of 3% inflation, but inflation turns out to be 1%.In this case, ______ lost purchasing power, and ______ gained purchasing power.

If the total expenditures of a typical family equaled $35,000 per year in 2010 and the exact same basket of goods and services cost $40,000 in the year 2015, the family's cost of living:

Two types of bias that tend to cause the CPI to overstate the "true" rate of inflation are the ______ bias and the ______ bias.

The price of a gallon of gasoline at the pump increased by 5 percent at the same time that the inflation rate was also 5 percent.The nominal price of gasoline _____, and the real price of gasoline _____.

The price level is: