ECON 202: FINAL EXAM
55 Cards in this Set
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CPI (Consumer Price Index)
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a measure of average of price paid by urban consumers for a fixed market basket of consumption goods and services.
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The Reference Base year
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Equals 100, currently base period is 1982-1984
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CPI FORMULA
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Cost of CPI basket at current period prices divided by cost of CPI basket at base period prices times 100
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Inflation rate formula
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CPI in current year minus CPI in previous year divided by CPI in previous year times 100
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Deflation
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a situation in which the price level is falling and the inflation rate is negative.
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Inflation rate
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the percentage change in the price level from one year to the next
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New goods bais
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Things we didn't have in the past but do have them now.
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Quality change bias
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things get improved but also cost more because of improvement.
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Commodity substitution bias
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When an items price goes high, you tend to go for another one to sub it.
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Outlet substitution bias
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You see the price of gas rise, you tend to drive somewhere else further where gas is less expensive.
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Real wage rate formula
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Nominal wage rate / CPI in that year x 100
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Real interest rate formula
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nominal interest rate - inflation rate.
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The CPI measures the average prices paid by ____ for ____
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A. urban consumers; a fixed basket of consumption goods and services.
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The Bureau of Labor Statistics reported that the CPI in July 2010 was 226. This tells you
that:
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The prices of consumption goods have risen by 126 percent since the base year.
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When the price level _______ , the inflation rate.
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rises rapidly; is high
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The CPI bias arises from all of the following except:
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The goods and services bought by poor people
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Consumers in a country buy only two goods, sneakers and manicures. The prices and quantities purchased by urban households are in the table above. The reference base year is 2011. The inflation rate between 2011 and 2012 is
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10.3 percent.
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If the cost of the CPI market basket at current period prices is $1000 and the cost of the CPI market basket at base period prices is $250, the CPI is
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400
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If the CPI decreases from one year to the next, then the inflation rate is
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negative
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Suppose a report from the Bureau of Labor Statistics states that the CPI for the year 2012 was 152. What is the percentage point increase in the prices of the goods and services since the reference base period?
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52 percent
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Suppose in year 1 the CPI is 90, in year 2 the CPI is 100, and in year 3 the CPI is 110. Then, inflation is
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11 percent between years 1 and 2.
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Suppose that the cost of the CPI basket of goods and services rises from $137 in 2010, which is the base year, to $159 in 2011. The CPI in 2011 is ________ and the inflation rate from 2010 to 2011 is ________.
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116;22
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The Consumer Price Index (CPI) measures the changes of the
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prices paid by consumers for a fixed market basket of consumer goods and services
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The CPI market basket is determined by
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consumer survey
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The data in the table above shows the consumption by families in an economy. The year 2013 is the reference base period.
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-1.5 percent.
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Based on the table above, between 2013 and 2014, the inflation rate in this country was
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...
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Which of the following changes would have the largest impact on the CPI?
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a one percent increase in the cost of housing
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Because a third of government outlays are linked directly to the CPI, as time passes, the CPI bias means that the government's outlays are
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c. larger than needed to keep pace with the cost of living.
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If Caterpillar Inc. raises the price of earth-moving equipment that it manufactures in Illinois, then the CPI will ________ and the GDP deflator will ________.
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not change; increase
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When the CPI increases from 200 to 2010 to 210 in 2011 and the nominal wage rate is
constant at $10 an hour, the real wage rate _________
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decreases to $4.8 an hour
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A rise in the real interest rate decreases the quantity of loanable funds demanded
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...
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A fall in the real interest rate increases the quantity of loanable funds demanded
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...
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A rise in the real interest rate increase the quantity of loanable funds supplied
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...
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A fall in the real interest rate decreases the quantity of loanable funds supplied
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...
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financial capital is the
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money used to buy physical capital
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If the price of a U.S. government bond is $50 and the owner of the bond is entitled to
$2.50 income each year, then the interest rate on the bond is
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5 percent
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Financial capital
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depends on saving and borrowing decisions.
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A decrease in households' disposable income ________ saving supply, and the supply of loanable funds curve ________.
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decreases; shifts leftward
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An increase in wealth ________ saving supply, and the supply of loanable funds curve ________.
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decreases; shifts leftward
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If firms became more optimistic about the future of the economy, which of the following occurs?
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Investment demand increases, and the demand for loanable funds curve shifts rightward.
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Other things remaining the same, a ________ in the real interest rate ________ the quantity of saving supplied and ________ the quantity of loanable funds supplied.
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rise; increases; increases
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Other things remaining the same, a ________ in the real interest rate ________ the quantity of saving supplied and ________ the quantity of loanable funds supplied.
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rise; increases; increases
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The equilibrium real interest rate is 5 percent. If the real interest rate is
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8 percent, there is a surplus of loanable funds.
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The quantity of loanable funds demanded increases if the real interest rate falls, all other things remaining the same, because the real interest rate
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is the opportunity cost of investment.
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When the real interest rate ________ the equilibrium real interest rate, there is a ________ of loanable funds and the real interest rate ________.
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is less than; shortage; rises
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Which of the following occurs if the real interest rate falls?
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The quantity of loanable funds demanded increases and there is a movement down along the demand for loanable funds curve.
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Which of the following shifts the supply of loanable funds curve?
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change in disposable income
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For a government to add to the supply of loanable funds, it must
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have a budget surplus.
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the "crowding-out effect" refers to how a government budget deficit
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decreases the equilibrium quantity of investment.
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Money is used as a ________ when you visit the local farmers' market and compare prices across different vendors.
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unit of accounts
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The functions of money are
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medium of exchange, unit of account, and store of value.
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When real GDP increases, the demand for money ________ and the demand for money curve ________.
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increases; shifts rightward
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When the Fed increases the quantity of money, the
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equilibrium nominal interest rate falls.
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in the long run, an increase in the quantity of money ________ the value of money and ________ the price level.
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lowers; raises
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When the potential GDP increases, _______
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aggregate supply increase
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ECON 202: EXAM 1