Objective 2

Question 1

Inflation

Answer 1

A rise in the general price level.

Question 2

Measured inflation rate (formula to calculate)

Answer 2

(Current year’s CPI – Last year’s CPI) / Last year’s CPI

Question 3

Consumer Price Index (CPI)

Answer 3

A measurement of the weighted price of a basket of typical consumer goods and services purchased by households.

Question 4

GDP deflator

Answer 4

A technique of converting nominal GDP output to Real GDP output to account for changes in the price level

Question 5

Nominal wages

Answer 5

Wages measured in terms of actual money and not in terms of buying power.

Question 6

Real wages

Answer 6

Nominal wages adjusted for inflation and provides a more accurate measure of buying power.

Question 7

Nominal interest rate

Answer 7

Actual interest rate charged or earned, before taking into account inflation.

Question 8

Real interest rate

Answer 8

The real rate of interest charged or earned after taking into account inflation. Real interest rate = Nominal – Inflation.