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If the value of the consumer price index is 110 in 2005 and 121 in 2006,then the inflation rate is 11 percent for 2006.

A) True
B) False

Correct Answer

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The nominal interest rate tells you how fast the number of dollars in your bank account rises over time.

A) True
B) False

Correct Answer

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Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent.A year later,Bob withdraws his $105.If inflation was 7 percent during the year the money was deposited,then Bob's purchasing power has increased by 2 percent.

A) True
B) False

Correct Answer

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The Bureau of Labor Statistics does not try to account for quality changes in the goods and services in the basket used to compute the CPI.

A) True
B) False

Correct Answer

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A COLA automatically raises the wage when the CPI rises.

A) True
B) False

Correct Answer

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In comparison to the situation in the late 1970s,the United States experienced lower nominal interest rates and higher real interest rates in the late 1990s.

A) True
B) False

Correct Answer

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The real interest rate measures the change in dollar amounts.

A) True
B) False

Correct Answer

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Core CPI is a price index that only looks at the prices of food and energy and ignores the prices of all other goods and services.

A) True
B) False

Correct Answer

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The value of the consumer price index increased from 140 to 147 during 2006.Nathan opened a bank account at the beginning of 2006,and at the end of 2006 his account balance was $12,840.The purchasing power of Nathan's account increased by 2 percent during the year.We can conclude that Nathan opened his account with a deposit of $11,500 at the beginning of 2006.

A) True
B) False

Correct Answer

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The CPI is always 1 in the base year.

A) True
B) False

Correct Answer

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Inflation can be measured using either the GDP deflator or the consumer price index.

A) True
B) False

Correct Answer

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Data from the Bureau of Labor Statistics show that the largest category of consumer spending is housing.

A) True
B) False

Correct Answer

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If the real interest rate is 5 percent and the inflation rate is 2 percent,then the nominal interest rate is 7 percent.

A) True
B) False

Correct Answer

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Substitution bias occurs because the CPI ignores the possibility of consumer substitution toward goods that have become relatively less expensive.

A) True
B) False

Correct Answer

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Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent.A year later,Bob withdraws his $105.If inflation was 2 percent during the year the money was deposited,then Bob's purchasing power has increased by 3 percent.

A) True
B) False

Correct Answer

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Economists use the term inflation to describe a situation in which the economy's overall price level is rising.

A) True
B) False

Correct Answer

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There is no longer much debate among economists concerning the severity of and the solution to the problems in using the CPI to measure the cost of living.

A) True
B) False

Correct Answer

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The inflation rate is the absolute change in the price level from the previous period.

A) True
B) False

Correct Answer

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When consumer spending is broken down into the major categories of goods and services,the largest single category is spending on transportation.

A) True
B) False

Correct Answer

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The U.S.income tax system is completely indexed for inflation.

A) True
B) False

Correct Answer

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