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Flashcards in Inflation Deck (39)
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1

A basket of goods and services that is typically bought with the goods weighed by their price.

Price index

2

A measure of the average of the prices paid by consumers for a fixed market basket of consumer goods and services.

Consumer price index (CPI)

3

If the 2015 price of a market basket of goods is $900 and the base-year price for the same market basket is $500 what is the value of the consumer price index?

180 = 900 / 500 x 100
Consumer price index (CPI)

4

What is the formula for calculating the consumer price index?

Expenditures in the current year /expenditures in the base year * 100

5

True or false. A market Basket is a collection of goods that is used by a typical family.

True

6

What must the CPI be equal to for any designated base year?

100

7

Prices paid by a typical urban family of four for a fixed market basket of consumer goods and services

Consumer price index (CPI)

8

Inflation that includes food and energy prices

Headline inflation

9

Inflation that excludes food and energy prices

Core inflation

10

Assume the average annual CPI values for 2012 and 2013 with 205.4 and 215.7 respectively what was the percent increase in the CPI between these two years?

About 5%.
(215.7 - 205.4) / 205.4 * 100

11

If the CPI increase is from 125 to 150 between your one and year two then the inflation rate is what?

20%

12

True or false. The real wage equals the nominal wage divided by the CPI, all times 100

True

13

The substitution bias in the consumer price index refers to the idea that consumers _______________the quantity of products they buy in response to price. And the CPI does not reflect this and ________________the cost of the Market Basket.

Change and overestimates

14

Which of the following is a criticism of the CPI?

1) The market basket is changed too often
2) The market basket includes too many investment goods
3) there are too few items in the basket
4) The Market Basket is not changed often enough


The market basket is not changed often enough

15

The cpi tends to overstate the true inflation rate because

1) we cannot know what the true inflation rate is
2) The market basket actually selected is inappropriate
3) The Market Basket fails to weigh housing costs sufficiently
4) it feels to consider the effect of new products in the market place

It fails to consider the effect of new products in the marketplace.

The CPI does not address the basket when new products are introduced that will shift the consumption from one good to another.

16

Measures the price level in any year relative to some base year.

Price index

17

True or false. The percentage change in the CPI from one year to the next is the inflation rate.

True

18

The federal reserve, the US's central bank, would like the inflation rate to be right around what percentage?

2%

19

A type of inflation that doesn't cause much harm to an economy because everyone knows it is going to happen.

Anticipated

20

A type of inflation that causes a lot of harm to an economy because no one is expecting it.

Unanticipated

21

What type of inflation causes an unintended and often undesirable redistribution of income and wealth?

Unanticipated

22

Who often wins during times of inflation because state and federal income tax revenues tend to rise faster than the inflation rate?

Governments

23

True or false. Revenue from other taxes such as sales taxes and property taxes tends to leg behind inflation.

True

24

A decrease in the general price level of goods and services.

Deflation

25

True or false. Inflation reduces the real value of money over time; conversely. Deflation decreases the real value of money.

False

26

True or false. Inflation reduces the real value of money over time; conversely, deflation increases the real value of money.

True

27

True or false. During time of deflation, the value of the dollar is lower making that's worth more.

False

28

True or false. If people anticipate falling prices, they will spend less because they can purchase more in the future.

True

29

True or false. When inflation is unanticipated, creditors find themselves holding credits that are worth more money

False

30

True or false. When inflation is an anticipated, creditors find themselves holding credits that are worth less money.

True