Chapter 6: Cost Of Living

Question 1

Consumer price index (CPI)

Answer 1

Measure of the overall costs of the goods and services bought by a typical consumer

Question 2

5 steps to computing CPI

Answer 2

1) determine the basket
2) find the prices
3) compute the baskets cost
4) chose a base year and compute index
5) compute inflation rate

Question 3

Core inflation

Answer 3

Measure of the underlying trend of inflation

Food, clothing, shelter

Question 4

Indexed

Answer 4

Automatic correction of a dollar amount for the effects of Inflation by law or contract

Question 5

Nominal interest rate

Answer 5

Interest rate as usually reported without a correction for the effects of inflation

Question 6

Real interest rate

Answer 6

Interest rate corrected for the effects of inflation.