Chapter 11 Vocab

Question 1

What is nominal interest rate?

Answer 1

The interest rate, as usually reported, without a correction for the effects of inflation

Question 2

What is inflation rate?

Answer 2

The percentage change in the value of a price index

Question 3

What is indexation?

Answer 3

The automatic correction by law of contract of a dollar amount clearly the effects of inflation

Question 4

What is the producer price index?

Answer 4

A measure of the cost of a basket of goods and services typically purchased by firms

Question 5

What is the real interest rate?

Answer 5

The interest rate corrected for the effects of inflation

Question 6

What is inflation measured by changes in the CPI?

Answer 6

The percent increase in the price of goods purchases by consumers, including the prices of imported goods

Question 7

What is inflation measured by changes in the GDP deflator?

Answer 7

The percent increased in the price of domestically produced goods, including the price of goods produced domestically BG foreign-owned firms

Question 8

What is the CPI?

Answer 8

Cost of goods bought by a consumer in a current year DIVIDED by the cost of the same basket of goods in the base year

Times 100

Question 9

What is the fisher equation?

Answer 9

A relationship defining how interest rates are corrected for the effects of inflation, specifically: real interest rate EQUALS nominal interest rate MINUS inflation rate