Midterm 1 Flashcards
More probable questions from Mankiw (42 cards)
An increase in the price of imported cameras is captured by the CPI but not by the GDP deflator.
T
An increase in the price of helicopters purchased by the UK armed forces is captured by the CPI.
F
Because an increase in petrol prices causes consumers to ride their bikes more and drive their cars less, the CPI tends to underestimate the cost of living.
F
An increase in the price of diamonds will have a greater impact on the CPI than an equal percentage increase in the price of food because diamonds are so much more expensive.
F
The “base year” in a price index is the benchmark year against which other years are compared.
T
If the CPI rises at 5 percent per year, then every individual in the country needs exactly a 5 percent increase in their income for their standard of living to remain constant.
F
The producer price index (PPI) is constructed to measure the change in price of total production.
F
If the Office of National Statistics fails to recognize that recently produced cars can be driven for many more miles than older models, then the CPI tends to overestimate the cost of living.
T
If your wage rises from €500 per week to €625 per week while the CPI rises from 112 to 121, you should feel an increase in your standard of living.
T
The largest category of goods and services in the CPI is food and non-alcoholic beverages.
F
It is impossible for real interest rates to be negative.
F
If the nominal interest rate is 12 percent and the rate of inflation is 7 percent, then the real rate of interest is 5 percent.
T
If lenders demand a real rate of return of 4 percent and they expect inflation to be 5 percent, then they should charge 9 percent interest when they extend loans.
T
If borrowers and lenders agree on a nominal interest rate and inflation turns out to be greater than they had anticipated, lenders will gain at the expense of borrowers.
F
If workers and firms agree on an increase in wages based on their expectations of inflation and inflation turns out to be less than they expected, workers will gain at the expense of firms.
T
Money and wealth are the same thing.
F
Fiat money is money that is used in Italy.
F
Commodity money has value independent of its use as money.
T
A depository institution is one that accepts deposits, and so provides people with a safe place to keep their money, but does not make loans.
T
When you are willing to go to sleep tonight with £100 in your wallet and you have complete confidence that you can spend it tomorrow and receive the same amount of goods as you would have received had you spent it today, money has demonstrated its function as a medium of exchange.
F
Money has three functions: It acts as a medium of exchange, a unit of account, and a hedge against inflation.
F
The Bank of England is the central bank of the United Kingdom and its Monetary Policy Committee comprises members appointed by the Bank and by the Chancellor of the Exchequer (the UK finance minister).
T
If there is 100 per cent reserve banking, the money supply is unaffected by the proportion of its money that the public chooses to hold as currency rather than as bank deposits.
T
A repurchase agreement is an agreement between the central bank and a commercial bank whereby a bond or other non-monetary asset is sold by one to the other with an agreement to reverse the transaction a short time later.
T
