Deck 24: 2:sec 242 Mc Correcting Economic Variables for the Effects of Inflation

Question 1

If the CPI was 90 in 1975 and is 225 today,then $100 today purchases the same amount of goods and services as

A)$25.00 purchased in 1975.
B)$33.33 purchased in 1975.
C)$40.00 purchased in 1975.
D)$135.55 purchased in 1975.

Answer 1

D

Question 2

If the CPI was 95 in 1955 and is 475 today,then $100 today purchases the same amount of goods and services as

A)$4.75 purchased in 1955.
B)$20.00 purchased in 1955.
C)$95.00 purchased in 1955.
D)$500 purchased in 1955.

Answer 2

D

Question 3

The CPI was 96 in 1982,and the CPI was 230 in 2012.How much money would you have needed in 2012 in order to buy what you could have bought with $500 in 1982?

A)$208.96
B)$1,197.92
C)$697.92
D)$1,697.92

Answer 3

C

Question 4

You know that a candy bar cost five cents in 1962.You also know the CPI for 1962 and the CPI for today.Which of the following would you use to compute the price of the candy bar in today's prices?

A)five cents (1962 CPI / today's CPI)
B)five cents ((today's CPI - 1962 CPI)/1962 CPI)
C)five cents (today's CPI / 1962 CPI)
D)five cents today's CPI - five cents
1962 CPI.

Question 5

You know that a candy bar costs sixty cents today.You also know the CPI for 1962 and the CPI for today.Which of the following would you use to compute the price of the candy bar in 1962 prices?

A)sixty cents (today's CPI - 1962 CPI)
B)sixty cents (1962 CPI - today's CPI)
C)sixty cents (today's CPI / 1962 CPI)
D)sixty cents (1962 CPI / today's CPI)

Question 6

Babe Ruth's 1931 salary was $80,000.Government statistics show a consumer price index of 15.2 for 1931 and 237 for 2015.Ruth's 1931 salary was equivalent to a 2015 salary of about

A)$5,296.
B)$1,128,421
C)$1,247,368
D)$17,152,000

Question 7

If the CPI was 108.00 in 1942 and is 336.96 today,then $10 in 1942 purchased the same amount of goods and services as

A)$2.57 purchases today.
B)$28.89 purchases today.
C)$31.20 purchases today.
D)$38.89 purchases today.

Question 8

In 1969,Malcolm bought a Pontiac Firebird for $2,500.If the price index was 36.7 in 1969 and the price index was 235 in 2013,then what is the price of the Firebird in 2013 dollars?

A)$4,609.57
B)$4,957.51
C)$13,508.17
D)$16,008.17

Question 9

If the CPI was 104 in 1967 and is 390 today,then $10 in 1967 purchased the same amount of goods and services as

A)$2.67 purchases today.
B)$37.50 purchases today.
C)$39.00 purchases today.
D)$104.00 purchases today.

Question 10

If the CPI was 127 in 1972 and is 324 today,then $10 in 1972 purchased the same amount of goods and services as

A)$3.92 purchases today.
B)$25.51 purchases today.
C)$207.00 purchases today.
D)$324.00 purchases today.

Question 11

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

A)$4,965.
B)$1,169,408.
C)$1,057,894.
D)$16,080,001.

Question 12

The CPI was 172 in 2007,and the CPI was 46.5 in 1982.If your parents put aside $1,000 for you in 1982,then how much would you have needed in 2007 in order to buy what you could have bought with the $1,000 in 1982?

A)$270.35
B)$1,255.00
C)$2,698.92
D)$3,698.92

Question 13

When we express Babe Ruth's 1931 salary in today's dollars and compare his salary to those of current New York Yankee players,we find that the current median salary of today's Yankees is

A)about three quarters of Ruth's salary.
B)about the same as Ruth's salary.
C)about twice Ruth's salary.
D)more than four times Ruth's salary.

Question 14

Ethel purchased a bag of groceries in 1970 for $8.She purchased the same bag of groceries in 2006 for $25.If the price index was 38.8 in 1970 and the price index was 180 in 2006,then what is the price of the 1970 bag of groceries in 2006 dollars?

A)$5.39
B)$25.00
C)$29.11
D)$37.11

Question 15

The primary purpose of measuring the overall level of prices in the economy is to

A)allow for the measurement of GDP.
B)allow consumers to know what kinds of prices to expect in the future.
C)allow for the comparison of dollar figures from different points in time.
D)allow for the comparison of dollar figures from the same point in time.

Question 16

If the CPI was 68 in 1965 and is 285 today,then $100 today purchases the same amount of goods and services as

A)$23.86 purchased in 1965.
B)$32.47 purchased in 1965.
C)$68.00 purchased in 1965.
D)$419.12 purchased in 1965.

Question 17

In 1931 the price of a movie ticket was $0.25.The consumer price index was 15.2 in 1931,and 210 in 2008.Using 2008 prices,the real price of a movie in 1931 was

A)$13.82.
B)$52.50.
C)$1.81.
D)$3.45.

Question 18

David earned a salary of $43,500 in 1994 and $89,000 in 2010.The consumer price index was 148.2 in 1994 and 215.3 in 2010.David's 1994 salary in 2010 dollars is

A)$43,849.05
B)$61,263.43
C)$63,195.34
D)$93,655.50

Question 19

In 1986,Ken bought a Ford Mustang for $8,000.If the price index was 122 in 1986 and the price index was 280 in 2011,then what is the price of the Mustang in 2011 dollars?

A)$3,485.71
B)$8,100.71
C)$18,360.66
D)$22,400.00

Question 20

In 1949,Sycamore,Illinois built a hospital for about $500,000.In 1987,the county restored the courthouse for about $2.4 million.A price index for nonresidential construction was 14 in 1949,92 in 1987,and 114.5 in 2000.According to these numbers,the hospital cost about

A)$3.6 million in 2000 dollars,which is less than the cost of the courthouse restoration in 2000 dollars.
B)$3.6 million in 2000 dollars,which is more than the cost of the courthouse restoration in 2000 dollars.
C)$4.1 million in 2000 dollars,which is less than the cost of the courthouse restoration in 2000 dollars.
D)$4.1 million in 2000 dollars,which is more than the cost of the courthouse restoration in 2000 dollars.

Question 21

In 1970,Professor Plum earned $12,000;in 1980,he earned $24,000;and in 1990,he earned $36,000.If the CPI was 40 in 1970,70 in 1980,and 130 in 1990,then in real terms,Professor Plum's salary was highest in

A)1970 and lowest in 1980.
B)1970 and lowest in 1990.
C)1980 and lowest in 1970.
D)1980 and lowest in 1990.

Question 22

Iggie took a university teaching job as an assistant professor in 1980 at a salary of $15,000.By 2011,she had been promoted to full professor,with a salary of $70,000.If the price index was 82 in 1980 and 225 in 2011,then what is Iggie's 1980 salary in 2011 dollars?

A)$5,400
B)$20,466
C)$26,158
D)$41,159

Question 23

Ruben earned a salary of $60,000 in 2001 and $80,000 in 2006.The consumer price index was 177 in 2001 and 221.25 in 2006.Ruben's 2006 salary in 2001 dollars is

A)$20,000;thus,Ruben's purchasing power increased between 2001 and 2006.
B)$20,000;thus,Ruben's purchasing power decreased between 2001 and 2006.
C)$64,000;thus,Ruben's purchasing power increased between 2001 and 2006.
D)$64,000;thus,Ruben's purchasing power decreased between 2001 and 2006.

Question 24

Scenario 24-2
The price tag on a golf ball in 1975 read $0.20,and the price tag on a golf ball in 2005 read $2.00.The CPI in 1975 was 52.3,and the CPI in 2005 was 191.3.
Refer to Scenario 24-2.The price of a 1975 golf ball in 2005 dollars is

A)$0.05.
B)$0.53.
C)$0.73.
D)$2.00.

Question 25

Scenario 24-1
The price tag on a tennis ball in 1975 read $0.10,and the price tag on a tennis ball in 2005 read $1.00.The CPI in 1975 was 52.3,and the CPI in 2005 was 191.3.
Refer to Scenario 24-1.The price of a 1975 tennis ball in 2005 dollars is

A)$0.03.
B)$0.27.
C)$0.37.
D)$1.00.

Question 26

Dewey earned a salary of $75,000 in 2001 and $95,000 in 2006.The consumer price index was 177 in 2001 and 266 in 2006.Dewey's 2001 salary in 2006 dollars is

A)$37,711.86.
B)$49,906.02.
C)$66,750.00.
D)$112,711.86.

Question 27

Dewey earned a salary of $75,000 in 2001 and $95,000 in 2006.The consumer price index was 177 in 2001 and 266 in 2006.Dewey's 2006 salary in 2001 dollars is

A)$47,768.36.
B)$63,214.29.
C)$84,550.00.
D)$142,768.36.

Question 28

Scenario 24-2
The price tag on a golf ball in 1975 read $0.20,and the price tag on a golf ball in 2005 read $2.00.The CPI in 1975 was 52.3,and the CPI in 2005 was 191.3.
Refer to Scenario 24-2.In 1975 dollars,a 1975 golf ball cost $0.20 and a 2005 golf ball cost

A)$0.55,so golf balls were cheaper in 1975.
B)$0.55,so golf balls were cheaper in 2005.
C)$7.32,so golf balls were cheaper in 1975.
D)$7.32,so golf balls were cheaper in 2005.

Question 29

Scenario 24-1
The price tag on a tennis ball in 1975 read $0.10,and the price tag on a tennis ball in 2005 read $1.00.The CPI in 1975 was 52.3,and the CPI in 2005 was 191.3.
Refer to Scenario 24-1.In 1975 dollars,a 1975 tennis ball cost $0.10 and a 2005 tennis ball cost

A)$0.27,so tennis balls were cheaper in 1975.
B)$0.27,so tennis balls were cheaper in 2005.
C)$3.66,so tennis balls were cheaper in 1975.
D)$3.66,so tennis balls were cheaper in 2005.

Question 30

Iggie took a university teaching job as an assistant professor in 1980 at a salary of $15,000.By 2011,she had been promoted to full professor,with a salary of $70,000.If the price index was 82 in 1980 and 225 in 2011,then what is Iggie's 2011 salary in 1980 dollars?

A)$25,511
B)$52,073
C)$40,140
D)$41,159

Question 31

Janelle earned a salary of $62,000 in 2004 and $80,000 in 2014.The consumer price index was 126 in 2004 and 170 in 2014.Janelle's 2004 salary in 2014 dollars is

A)$45,953.
B)$89,280.
C)$107,953.
D)$83,651.

Question 32

Janelle earned a salary of $40,000 in 1996 and $65,000 in 2006.The consumer price index was 160 in 1996 and 266 in 2006.Janelle's 2006 salary in 1996 dollars is

A)$39,097.74.
B)$43,062.50.
C)$68,900.00.
D)$108,062.50.

Question 33

Arlo is offered a job in Des Moines,where the CPI is 60,and a job in New York,where the CPI is 125.Arlo's job offer in Des Moines is for $48,000.How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?

A)$23,040
B)$52,000
C)$79,200
D)$100,000

Question 34

Ruben earned a salary of $60,000 in 2001 and $80,000 in 2006.The consumer price index was 177 in 2001 and 221.25 in 2006.Ruben's 2001 salary in 2006 dollars is

A)$75,000;thus,Ruben's purchasing power increased between 2001 and 2006.
B)$75,000;thus,Ruben's purchasing power decreased between 2001 and 2006.
C)$85,000;thus,Ruben's purchasing power increased between 2001 and 2006.
D)$85,000;thus,Ruben's purchasing power decreased between 2001 and 2006.

Question 35

Henri earned a salary of $50,000 in 2001 and $70,000 in 2006.The consumer price index was 177 in 2001 and 265.5 in 2006.Henri's 2006 salary in 2001 dollars is

A)$35,000.00.
B)$46,666.67.
C)$61,950.00
D)$105,000.00.

Question 36

In 1949,Sycamore,Illinois built a hospital for about $500,000.In 1987,the county restored the courthouse for about $1.7 million.A price index for nonresidential construction was 24 in 1949,108 in 1987,and 126.5 in 2000.According to these numbers,the hospital cost about

A)$2.1 million in 2000 dollars,which is less than the cost of the courthouse restoration in 2000 dollars.
B)$2.1 million in 2000 dollars,which is more than the cost of the courthouse restoration in 2000 dollars.
C)$2.6 million in 2000 dollars,which is less than the cost of the courthouse restoration in 2000 dollars.
D)$2.6 million in 2000 dollars,which is more than the cost of the courthouse restoration in 2000 dollars.

Question 37

In 1970,Professor Plum earned $12,000;in 1980,he earned $24,000;and in 1990,he earned $36,000.If the CPI was 40 in 1970,60 in 1980,and 100 in 1990,then in real terms,Professor Plum's salary was highest in

A)1980 and lowest in 1970.
B)1980 and lowest in 1990.
C)1990 and lowest in 1970.
D)1990 and lowest in 1980.

Question 38

Harry spent $39,000 in 2009 and $42,000 in 2014 on goods and services.The consumer price index was 220 for 2009 and 231 for 2014.Harry's 2009 spending in 2014 dollars is about

A)$43,290.
B)$37,143.
C)$40,950.
D)$40,857.

Question 39

Henri earned a salary of $50,000 in 2001 and $60,000 in 2012.The consumer price index was 177 in 2001 and 225 in 2012.Henri's 2001 salary in 2012 dollars is

A)$39,333.33.
B)$74,000.00.
C)$89,333.33.
D)$63,559.32.

Question 40

Arlo is offered a job in Des Moines,where the CPI is 80,and a job in New York,where the CPI is 125.Arlo's job offer in Des Moines is for $42,000.How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?

A)$42,000
B)$65,625
C)$68,880
D)$189,000

Question 41

In 1972,one could buy a bag of chips,a pound of hamburger,a package of buns,and a small bag of charcoal for about $2.50.If the same goods today cost $6.00,then which pair of CPIs would make the cost in today's dollars the same for both years?

A)60 in 1972 and 150 today
B)65 in 1972 and 156 today
C)75 in 1972 and 160 today
D)90 in 1972 and 145.8 today

Question 42

When box office receipts are corrected for inflation,the most popular movie of all time is

A)Star Wars.
B)Titanic.
C)Gone With the Wind.
D)The Sound of Music.

Question 43

In 1974,one could buy a theater ticket for $1.25.Today the same theater ticket costs $6.50.Which pair of CPIs would imply that the cost in today's dollars was the same for both tickets?

A)60 in 1964 and 390 today
B)75 in 1964 and 390 today
C)80 in 1964 and 404 today
D)95 in 1964 and 475 today

Question 44

Scenario 24-4
Quinn has job offers in Wrexington and across the country in Charlieville.The Wrexington job would pay a salary of $50,000 per year,and the Charlieville job would pay a salary of $40,000 per year.The CPI in Wrexington is 150,and the CPI in Charlieville is 90.
Refer to Scenario 24-4.The Wrexington salary in Charlieville dollars is

A)$30,000.00.
B)$33,333.33.
C)$45,000.00
D)$83,333.33.

Question 45

Pauline is offered a Job in Minneapolis that pays $80,000.She is offered a similar job in Louisville that pays $71,200.Which pair of CPIs would ensure that the two salaries have the same purchasing power?

A)90 in Minneapolis and 83 in Louisville
B)90 in Minneapolis and 72 in Louisville
C)100 in Minneapolis and 89 in Louisville
D)105 in Minneapolis and 90 in Louisville

Question 46

Scenario 24-4
Quinn has job offers in Wrexington and across the country in Charlieville.The Wrexington job would pay a salary of $50,000 per year,and the Charlieville job would pay a salary of $40,000 per year.The CPI in Wrexington is 150,and the CPI in Charlieville is 90.
Refer to Scenario 24-4.If Quinn only cares about maximizing her purchasing power,then she should

A)take the Charlieville job.
B)take the Wrexington job.
C)take either job because they both have the same purchasing power.
D)The answer cannot be determined from the information given because a salary is not the same as purchasing power.

Question 47

When box office receipts are not corrected for inflation,the most popular movie of all time is

A)Star Wars: The Force Awakens.
B)Avatar.
C)Gone With the Wind.
D)The Dark Knight.

Question 48

Scenario 24-3
Sue Holloway was an accountant in 1944 and earned $12,000 that year.Her son,Josh Holloway,is an accountant today and he earned $210,000 in 2013.The price index was 17.6 in 1944 and 218.4 in 2013.
Refer to Scenario 24-3.In real terms,Sue Holloway's income amounts to about what percentage of Josh Holloway's income?

A)11.0 percent
B)65.2 percent
C)70.9 percent
D)114.7 percent

Question 49

Scenario 24-3
Sue Holloway was an accountant in 1944 and earned $12,000 that year.Her son,Josh Holloway,is an accountant today and he earned $210,000 in 2013.The price index was 17.6 in 1944 and 218.4 in 2013.
Refer to Scenario 24-3.Josh Holloway's 2013 income in 1944 dollars is

A)$11,528.
B)$16,923.
C)$149,009.
D)$26,059.

Question 50

In 1972,one could buy model rocket engines for $1.50 each.If those same engines cost $2.50 each today,then which pair of CPIs would make the engine prices in today's dollars the same for both years?

A)60 in 1972 and 95 today
B)60 in 1972 and 120 today
C)90 in 1972 and 150 today
D)96 in 1972 and 154 today

Question 51

Wilson is offered a job in Kansas City that pays $50,000 and a job in Dallas that pays $60,000.Which pair of CPIs would ensure that the two salaries have the same purchasing power?

A)80 in Kansas City and 100 in Dallas
B)125 in Kansas City and 150 in Dallas
C)100 in Kansas City and 124.5 in Dallas
D)100 in Kansas City and 140 in Dallas

Question 52

John just graduated law school and has two competing job offers.The first is in Phoenix and pays a salary of $150,000.He has a similar job offer in Cleveland that pays $90,000.Which pair of CPIs would make the two salaries have the same purchasing power?

A)70 in Phoenix and 42 in Cleveland
B)68 in Phoenix and 34 in Cleveland
C)42 in Phoenix and 70 in Cleveland
D)34 in Phoenix and 68 in Cleveland

Question 53

Scenario 24-3
Sue Holloway was an accountant in 1944 and earned $12,000 that year.Her son,Josh Holloway,is an accountant today and he earned $210,000 in 2013.The price index was 17.6 in 1944 and 218.4 in 2013.
Refer to Scenario 24-3.Sue Holloway's 1944 income in 2013 dollars is

A)$23,033.
B)$136,909.
C)$148,909.
D)$240,960.

Question 54

Suppose the CPI was 56 in 1967,and suppose one must spend $349 today to obtain the same basket of goods and services that could be bought for $100 in 1967.Then today's CPI is

A)223.7.
B)195.0.
C)623.2.
D)195.4.

Question 55

Scenario 24-4
Quinn has job offers in Wrexington and across the country in Charlieville.The Wrexington job would pay a salary of $50,000 per year,and the Charlieville job would pay a salary of $40,000 per year.The CPI in Wrexington is 150,and the CPI in Charlieville is 90.
Refer to Scenario 24-4.The Charlieville salary in Wrexington dollars is

A)$24,000.00.
B)$26,666.67.
C)$60,000.00
D)$66,666.67.

Question 56

Suppose today's CPI is 134.85,and suppose one must spend $580 today to purchase the same basket of goods and services that could be bought for $400 in 1989.Then the CPI in 1989 was

A)24.27.
B)60.68.
C)93.00.
D)195.53.

Question 57

In 1983,one could buy a model radio-controlled airplane for $11.50 each.Those same planes are available today and the price increased at exactly the rate of inflation.If the CPI today is 220.5 and in 1983 was 105,what is the price of the airplane today?

A)$24.15
B)$11.50
C)$5.48
D)$2.10

Question 58

Harry spent $39,000 in 2009 and $42,000 in 2014 on goods and services.The consumer price index was 220 for 2009 and 231 for 2014.Harry's 2014 spending in 2009 dollars is about

A)$40,000.
B)$44,100.
C)$37,838.
D)$40,091.

Question 59

Scenario 24-3
Sue Holloway was an accountant in 1944 and earned $12,000 that year.Her son,Josh Holloway,is an accountant today and he earned $210,000 in 2013.The price index was 17.6 in 1944 and 218.4 in 2013.
Refer to Scenario 24-3.In real terms,Josh Holloway's income amounts to about what percentage of Sue Holloway's income?

A)71 percent
B)141 percent
C)165 percent
D)198 percent

Question 60

Elizabeth just received her Ph.D.in economics and has two competing job offers.The first is in Washington,D.C.and pays a salary of $200,000.She has a similar job offer in Austin,TX that pays $90,000.Which pair of CPIs would make the two salaries have the same purchasing power?

A)70 in Washington,D.C.and 42 in Austin,TX
B)140 in Washington,D.C.and 70 in Austin,TX
C)160 in Washington,D.C.and 72 in Austin,TX
D)210 in Washington,D.C.and 150 in Austin,TX

Question 61

A COLA automatically raises the wage when

A)GDP increases.
B)taxes increase.
C)the consumer price index increases.
D)the producer price index increases.

Question 62

Social Security payments are indexed for inflation using

A)the CPI.
B)the PPI.
C)the GDP deflator.
D)real interest rates.

Question 63

Which of the following statements about real and nominal interest rates is correct?

A)Real interest rates can be either positive or negative,but nominal interest rates must be positive.
B)Real interest rates and nominal interest rates must be positive.
C)Real interest rates must be positive,but nominal interest rates can be either positive or negative.
D)Real interest rates and nominal interest rates can be either positive or negative.

Question 64

Of Social Security benefits and federal income tax brackets,which is indexed?

A)Both are indexed.
B)Only Social Security benefits are indexed.
C)Only federal income tax brackets are indexed.
D)Neither is indexed.

Question 65

Consternation Corporation has an agreement with its workers to index completely the wage of its employees using the CPI.Consternation Corporation currently pays its production line workers $8.00 an hour and is scheduled to index their wages today.If the CPI is currently 160 and was 128 a year ago,the firm should increase the hourly wages of its workers by

A)$0.25.
B)$1.60.
C)$2.00.
D)$2.56.

Question 66

When box office receipts are not corrected for inflation,

A)The Sound of Music ranks as the most popular movie of all time.
B)Gone with the Wind does not rank as one of the 50 most popular movies of all time.
C)Titanic ranks as the most popular movie of all time.
D)Avatar does not rank as one of the 50 most popular movies of all time.

Question 67

Nate collected Social Security payments of $220 a month in 1985.If the price index rose from 90 to 108 between 1985 and 1986,then his Social Security payments for 1986 should have been

A)$228.
B)$238.
C)$257.
D)$264.

Question 68

The real interest rate tells you

A)how fast the number of dollars in your bank account rises over time.
B)how fast the purchasing power of your bank account rises over time.
C)the number of dollars in your bank account today.
D)the purchasing power of your bank account today.

Question 69

Marion collected Social Security payments of $250 a month in 1985.If the price index rose from 90 to 108 between 1985 and 1986,then her Social Security payments for 1986 should have been

A)$268.
B)$292.
C)$300.
D)$358.

Question 70

The nominal interest rate tells you

A)how fast the number of dollars in your bank account rises over time.
B)how fast the purchasing power of your bank account rises over time.
C)the number of dollars in your bank account today.
D)the purchasing power of your bank account today.

Question 71

Which of the following statements about real and nominal interest rates is correct?

A)When the nominal interest rate is rising,the real interest rate is necessarily rising;when the nominal interest rate is falling,the real interest rate is necessarily falling.
B)If the nominal interest rate is 4 percent and the inflation rate is 3 percent,then the real interest rate is 7 percent.
C)An increase in the real interest rate is necessarily accompanied by either an increase in the nominal interest rate,an increase in the inflation rate,or both.
D)When the inflation rate is positive,the nominal interest rate is necessarily greater than the real interest rate.

Question 72

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

A)There is no relationship between inflation and interest rates.
B)The interest rate is determined by the rate of inflation.
C)In order to fully understand inflation,we need to know how to correct for the effects of interest rates.
D)In order to fully understand interest rates,we need to know how to correct for the effects of inflation.

Question 73

Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?

A)The real interest rate is the nominal interest rate times the rate of inflation.
B)The real interest rate is the nominal interest rate minus the rate of inflation.
C)The real interest rate is the nominal interest rate plus the rate of inflation.
D)The real interest rate is the nominal interest rate divided by the rate of inflation.

Question 74

As long as prices are rising over time,then

A)the nominal interest rate exceeds the real interest rate.
B)the real interest rate exceeds the nominal interest rate.
C)the real interest rate is positive.
D)the nominal interest rate is a better indicator than the real interest rate of how fast the purchasing power of your bank account is changing over time.

Question 75

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

A)More people go to movies now than in the past.
B)There are no good substitutes for movies currently.
C)Prices,including those for movie tickets,have been rising over time.
D)Movies and DVD are complements.

Question 76

Social Security payments are indexed for inflation using the CPI.A recent newspaper editorial claimed that Social Security recipients are harmed by years of low inflation because they do not receive as large an increase in their payments as they do in years of high inflation.Which of the following statements is correct?

A)The newspaper editorial is correct under all circumstances.
B)The newspaper editorial is correct if the market basket consumed by Social Security recipients is the same as the market basket used to compute the CPI.
C)The newspaper editorial could be correct if the prices of the goods consumed by Social Security recipients change at a different rate than the prices of the goods in the market basket used to compute the CPI
D)The newspaper editorial is incorrect under all circumstances.

Question 77

Indexation refers to

A)a process of adjusting the nominal interest rate so that it is equal to the real interest rate.
B)using a law or contract to automatically correct a dollar amount for the effects of inflation.
C)using a price index to deflate dollar values.
D)an adjustment made by the Bureau of Labor Statistics to the CPI so that the index is in line with the GDP deflator.

Question 78

Consternation Corporation has an agreement with its workers to index completely the wage of its employees using the CPI.Consternation Corporation currently pays its production line workers $7.50 an hour and is scheduled to index their wages today.If the CPI is currently 130 and was 125 a year ago,the firm should increase the hourly wages of its workers by

A)$0.04.
B)$0.29.
C)$0.30.
D)$0.50.

Question 79

If the nominal interest rate is 8 percent and the rate of inflation is 3 percent,then the real interest rate is

A)-5 percent.
B)1.67 percent.
C)5 percent.
D)11 percent.

Question 80

Which of the following is not correct?

A)If the inflation rate exceeds the nominal interest rate,then the purchasing power of an interest-earning deposit falls over time.
B)If there is deflation,then the purchasing power of an interest-earning deposit rises by more than the nominal interest rate over time.
C)The higher the rate of inflation,the smaller the increase in the purchasing power of an interest-earning deposit.
D)The purchasing power of an interest-earning deposit can increase or decrease over time,but it cannot stay the same.