# Excercise #1: Calculate the Consumer Price Index If CPI for 2006 is above 1.

05 then purchasing power has NOT increased of household income. Inflation rate for 2001 = (CPI 2001 - CPI 2000) / (CPI of 2000)

2.

In the U.S. during the 1970s, nominal interest rates were: Falling and real interest rates were falling. Rising and real interest rates were rising. Falling and real interest rates were rising. NO Rising and real interest rates were falling. YES Rising and real interest rates became negative. Feedback For more information, see p. 168 of your textbook. 4. The CPI measures the ________; a measure of the rate of inflation is the _______. NO base year price level; current year price level current year price level; base year price level change in the level of prices; level of prices YES level of prices; change in the level of prices nominal price level; real price level Feedback For more information, see p. 150 of your textbook. 8. The price of a gallon of gasoline at the pump increased by 10 percent at the same time that the inflation rate was 15 percent. The nominal price of gasoline _____ and the real price of gasoline _____. increased; increased YES increased; decreased NO increased; did not change decreased; decreased decreased; increased Feedback For more information, see p. 152 of your textbook. 9. NO YES The real r = r = r = r = r = Feedback interest rate can be written in mathematical terms as: i - n n - i i + n n + i i / n

For more information, see p. 167 of your textbook. 2. NO YES The annual increase in the dollar value of a financial asset is called the: real rate of return. real interest rate. nominal interest rate. inflation rate. deflation rate.