Measuring the Cost of Living - B

The CPI is a measure of the overall cost of the goods and services bought by

• a typical firm.
• the government.
• a typical consumer.
• All of the above are correct.

What basket of goods and services is used to construct the CPI?

• a random sample of all goods and services produced in the economy
• the goods and services that are typically bought by consumers as determined by government surveys
• only food, clothing, transportation, entertainment, and education
• the least expensive and the most expensive goods and services in each major category of consumer expenditures

Which of the following statements about real and nominal interest rates is correct?

• Real interest rates can be either positive or negative, but nominal interest rates must be positive.
• Real interest rates and nominal interest rates must be positive.
• Real interest rates must be positive, but nominal interest rates can be either positive or negative.
• Real interest rates and nominal interest rates can be either positive or negative.

If the nominal interest rate is 8 percent and the real interest rate is 5.5 percent, then the inflation rate is

• -2.5 percent.
• 0.45 percent.
• 2.5 percent.
• 13.5 percent.

If the CPI is 93 in 2014 and 97 in 2015, calculate the rate of inflation from 2014 to 2015.

• 4%

• 4.3%

• 4.12%

• 5.2%

Mance wants to borrow money, but he doesn’t want to pay more than 11%, percent real interest per year. He expects the annual rate of inflation to be 3%, percent each year during the life of the loan. Based on this information, what is the highest nominal interest that he will be willing to pay?

• 8%

• 3%

• cannot be determined without more information

• 14%

Which of the following best describes the difference between nominal interest rates and real interest rates?

• nominal interest rates are what banks charge; real interest is what borrowers pay

• nominal interest is what you earn from a savings account; real interest is what the bank pays savings accounts

• nominal interest is paid on bonds; real interest is paid on stocks

• nominal interest rates are not adjusted for inflation; real interest rates are adjusted for inflation