CH 22

Question 1

a loan a borrower uses to purchase a home in which the interest rate varies with market interest rates

Answer 1

adjustable-rate mortgage (ARM)

Question 2

arbitrary year whose value as an index number economists define as 100; inflation from the base year to other years can easily be seen by comparing the index number in the other year to the index number in the base year—for example, 100; so, if the index number for a year is 105, then there has been exactly 5% inflation between that year and the base year

Answer 2

base year

Question 3

a hypothetical group of different items, with specified quantities of each one meant to represent a “typical” set of consumer purchases, used as a basis for calculating how the price level changes over time

Answer 3

basket of goods and services

Question 4

a measure of inflation that U.S. government statisticians calculate based on the price level from a fixed basket of goods and services that represents the average consumer’s purchases

Answer 4

Consumer Price Index (CPI)

Question 5

a measure of inflation typically calculated by taking the CPI and excluding volatile economic variables such as food and energy prices to better measure the underlying and persistent trend in long-term prices

Answer 5

core inflation index

Question 6

a contractual provision that wage increases will keep up with inflation

Answer 6

cost-of-living adjustments (COLAs)

Question 7

negative inflation; most prices in the economy are falling

Answer 7

deflation

Question 8

a measure of inflation based on wages paid in the labor market

Answer 8

Employment Cost Index

Question 9

a measure of inflation based on the prices of all the GDP components

Answer 9

GDP deflator

Question 10

an outburst of high inflation that often occurs (although not exclusively) when economies shift from a controlled economy to a market-oriented economy

Answer 10

hyperinflation

Question 11

a unit-free number derived from the price level over a number of years, which makes computing inflation rates easier, since the index number has values around 100

Answer 11

index number

Question 12

a price, wage, or interest rate is adjusted automatically for inflation

Answer 12

indexed

Question 13

a general and ongoing rise in price levels in an economy

Answer 13

inflation

Question 14

a measure of inflation based on the prices of merchandise that is exported or imported

Answer 14

International Price Index

Question 15

a measure of inflation based on prices paid for supplies and inputs by producers of goods and services

Answer 15

Producer Price Index (PPI)

Question 16

inflation calculated using a fixed basket of goods over time tends to overstate the true rise in cost of living, because it does not account for improvements in the quality of existing goods or the invention of new goods

Answer 16

quality/new goods bias

Question 17

an inflation rate calculated using a fixed basket of goods over time tends to overstate the true rise in the cost of living, because it does not take into account that the person can substitute away from goods whose prices
rise considerably

Answer 17

substitution bias