Inflation- The Cost of Living

Question 1

Nominal measure

Answer 1

hasnt been adjusted over time

Question 2

real measure

Answer 2

has been adjusted for price changes over time

Question 3

preferred measure

Answer 3

real measures, depict changes over time

Question 4

inflation

Answer 4

occurs when economy’s overall price level is rising

Question 5

deflation

Answer 5

occurs when economy’s overall price level is falling

Question 6

inflation rate

Answer 6

percent change in prices from one time period to another

Question 7

consumer price index

Answer 7

overall cost of goods and services bpught by the typical consumer, moniters changes in the cost of living over time

Question 8

cpi rises

Answer 8

family has to spend more to maintain same quality of life

Question 9

changes in cpi measured by

Answer 9

how much more or less a typical family would have to spend to purchase their previous basket

Question 10

fix the basket

Answer 10

determine what goods and services are most important to the typical urban consumer

Question 11

find the prices

Answer 11

find the prices of goods and services in the basket for the base year

Question 12

compute index

Answer 12

divide price of basket in one year by price in base year and multiply by 100

Question 13

calculate inflation rate

Answer 13

cpi in y1-cpi in y2/cpi in y1 x100

Question 14

demand pull inflation

Answer 14

spending increases faster than production

Question 15

cost push inflaton or supply side inflation

Answer 15

prices rise because of a rise in production cost

Question 16

quantity theory

Answer 16

too much money in an economy causes inflation

Question 17

who is hirt and helped by unanticipated inflation

Answer 17

fixred income groups hirt because their real income suffers
savers hurt because interest rate returns may not cover cost of inflationlenders hurt because they are paid back cheaper dollars
debtors helped

Question 18

inflation premium

Answer 18

amount that interest rate is raised to cover effects of anticipated inflation

Question 19

CPI overstates rate of inflation

Answer 19

substitution bias
intro of new goods
unmeasured quality changes

Question 20

sub bias

Answer 20

basket doesnt change to reflect consumer reactions to price changes(buy cheaper good w prce raises)

Question 21

intro of new goods

Answer 21

basket doesnt reflect imprvement of goods that makes dollars more valuable

Question 22

unmeasured quality changes

Answer 22

quality changes unmeasured

Question 23

producer price index

Answer 23

measures cost of a basket purchased by firms

Question 24

GDP deflator

Answer 24

nominal gdp/real gdp x100

Question 25

GDP defltor vs cpi

Answer 25

gdp- price of all goods and services produced domestically
cpi- prices of goods and services bought by customers

Question 26

rule of 70

Answer 26

we can find doubling time by dividing percentage increase into 70

Question 27

3% doubles in 23 yrs

Answer 27

70/3=23

Question 28

calculate real income

Answer 28

nominal income this yr/cpi this yr x100

Question 29

adjust wages from previous yr to urrent yr

Answer 29

cpi frm this yr/ cpi from previous yr x [revious yr income