Chapter 9 Flashcards
If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced:
deflation of 3.33 percent
Cost-of-living adjustment clauses (COLAs):
minimize the impact of inflation for affected workers
During a period of unanticipated deflation:
debtors lose, because they repay their debts with dollars of greater value
Recently a labour union argued that the standard of living of its members was falling. A critic of the union argued that this could not possibly be true, because the union had been acquiring increases in the nominal incomes of its members through collective bargaining. Is the critic correct?
No, because real income may fall if price increases are proportionally greater than the increases in nominal income.
Which of the following is least likely to be hurt by unanticipated inflation?
an owner of a small business with high debts
Unanticipated inflation:
arbitrarily “taxes” fixed-income groups
A lender need not be penalized by inflation if the:
lender correctly anticipates inflation and increases the nominal interest rate accordingly
Inflation is undesirable because it:
arbitrarily redistributes real income and wealth
In a given year, a country’s nominal income rose by 8 percent and its price level rose by 5 percent. We can conclude that the country’s real income:
rose by 3 percent
A country’s consumer price index was 124.0 at the end of year 1 and 130.7 at the end of year 2. Therefore, the rate of inflation during year 2 was about:
5.4 percent
Which of the following statements is correct?
Inflation reduces the purchasing power of the dollar, but does not necessarily reduce one’s real income.
The rate of inflation can be found by subtracting:
last year’s price index from this year’s price index, and dividing the difference by last year’s price index
