The following table shows the consumer price index for selected years. On the basis of these data, how much did it cost
in 1995 to buy the same goods and services that cost $50 in 1929?
(A)$25
(B)$100
(C)$125
(D)$250
(E)$300
When purchasing her house, Ms. Jones took out a 15-year mortgage loan from a local bank at a fixed interest rate of 7
percent. The rate of expected inflation at the time was 3 percent. If the actual rate of inflation was 4.5 percent, which of
the following is true?
(A)The bank gained because the real rate of interest increased by 1.5%.
(B)The bank gained because the real rate of interest became 3.5%.
(C)The bank lost because the real rate of interest decreased by 1.5%.
(D)Ms. Jones gained because the nominal rate of interest increased by 1.5%.
(E)Ms. Jones lost because the nominal rate of interest became 3.5%.
Inflation occurs when there is a sustained increase in which of the following?
(A)Real gross domestic product
(B)The average price level
(C)The price of any commodity
(D)Labor productivity
(E)The unemployment rate
The consumer price index (CPI) is criticized for
(A)overstating the true burden of inflation because it does not recognize consumers’ ability to substitute goods and
services as prices change
(B)overstating the true burden of inflation because it recognizes consumers’ ability to substitute goods and services as
prices change
(C)understating the true burden of inflation because it does not recognize consumers’ ability to substitute goods and
services as prices change
(D)understating the true burden of inflation because it recognizes consumers’ ability to substitute goods and services as
prices change
(E)overstating the true burden of inflation because it reflects the prices of both intermediate goods and final goods
Public policy that generates an unexpected increase in consumer prices will inflict short-run costs on all of the following
EXCEPT
(A)borrowers
(B)workers with fixed incomes
(C)savers holding non-interest-bearing money
(D)taxpayers shifted into higher tax brackets
(E)people whose incomes are not adjusted for inflation
The consumer price index (CPI) measures the
(A)value of current gross domestic product in base-year dollars
(B)prices of all consumer goods and services produced in the economy
(C)prices of selected raw materials purchased by firms
(D)prices of a specific group of goods and services purchased by consumers
(E)prices of imports, but not exports
Last year both a borrower and a lender expected an inflation rate of 3 percent when they signed a long-term loan
agreement with fixed nominal interest rates of 5 percent. If the actual inflation rate were lower than expected, then
which of the following would be true?
(A)The borrower would benefit.
(B)The lender would benefit.
(C)The real interest rate would be lower than expected.
(D)The nominal interest rate would be higher than expected.
(E)The nominal interest rate would increase.
Which of the following statements is true of unanticipated inflation?
(A)It decreases the economic well-being of all members of society proportionately.
(B)It decreases the economic well-being of all members of society equally.
(C)It increases the economic well-being of net creditors.
(D)It increases the economic well-being of net debtors.
(E)It increases the economic well-being of workers with long-term labor contracts.
The consumer price index (CPI) is designed to measure changes in the
(A)spending patterns of urban consumers only
(B)spending patterns of all consumers
(C)wholesale price of manufactured goods
(D)prices of all goods and services produced in an economy
(E)cost of a select market basket of goods and services
If a worker’s nominal wage rate increases from $10 to $12 per hour and at the same time the general price level
increases by 10 percent, the worker’s real wage has
(A)approximately decreased by 10%
(B)approximately decreased by 20%
(C)approximately increased by 10%
(D)approximately increased by 20%
(E)not changed
Which of the following groups would most likely gain from unanticipated inflation?
(A)Landlords who own apartments in cities with rent controls
(B)Individuals who have fixed retirement incomes
(C)Individuals who earn high incomes
(D)Individuals who have borrowed money at fixed interest rates
(E)Banks that have loaned all excess reserves at a fixed interest rate
Suppose that a typical consumer buys the following quantities of three commodities in 1993 and 1994. Which of the
following can be concluded about the consumer price index (CPI) for this individual from 1993 to 1994?
(A)It remained unchanged.
(B)It decreased by 25%.
(C)It decreased by 20%.
(D)It increased by 20%.
(E)It increased by 25%.
Which of the following would be true if the actual rate of inflation were less than the expected rate of inflation?
(A)Inflation had been underpredicted.
(B)The real interest rate had exceeded the nominal interest rate.
(C)The real interest rate had been negative.
(D)People who borrowed funds at the nominal interest rate during this lime period would lose.
(E)The economy would expand because of the increased investment and spending.
The real interest rate earned is the
(A)same as the nominal interest rate when inflation is moderate
(B)cost of borrowing in current consumer prices
(C)cost of borrowing in current producer prices
(D)cost of borrowing adjusted for the rate of change in the price level
(E)nominal interest rate adjusted for the growth rate of the economy
The annual inflation rate is expected to be 5 percent over the next 3 years. Juan plans to take out a 3-year loan to
purchase an automobile. If Juan decides not to take out the loan if the real interest rate exceeds 3 percent, the highest
nominal interest rate he is willing to pay is
(A)2 percent
(B)3 percent
(C)8 percent
(D)15 percent
(E)25 percent
Assume that the nominal interest rate is 10 percent. If the expected inflation rate is 5 percent, the real interest rate is
(A)0.5%
(B)2%
(C)5%
(D)10%
(E)15%
In the country of Agronomia, banks charge 10 percent interest on all loans. If the general price level has been increasing
at the rate of 4 percent per year, the real rate of interest in Agronomia is
(A)14%
(B)10%
(C)6%
(D)4%
(E)2.5%