CHAPTER 24

When studying changes in the economy over time, economists want a measure of the total
quantity of goods and services the economy is producing that is not affected by changes in
the prices of those goods and services. In other words, economists want to study
  
GNP
nominal GDP
real GDP
the GDP deflator
 
 
The _______ is the most commonly reported measure of inflation by the media.
  
GDP deflator
unemployment rate
CPI
GDP deflator
 
 
When the consumer price index rises, the typical family
  
finds that its standard of living is not affected.
has to spend more dollars to maintain the same standard of living.
can offset the effects of rising prices by saving more.
can spend fewer dollars to maintain the same standard of living.
 

??????
the interest rate as usually reported without a correction for the effects of inflation is 
  
PPI
Nominal interest rate
core CPI
Real interest rate
 
 
a measure of the overall cost of consumer goods and services excluding food and energy is
  
PPI
Nominal interest rate
Real interest rate  
core CPI
 
 
When the overall level of prices in the economy is increasing, economists say that the
economy is experiencing
  
deflation
economic growth.
inflation
stagflation
 
 
The nominal interest rate, the real interest rate, and inflation are related approximately as
follows:
  
real interest rate = nominal interest rate x inflation
real interest rate = nominal interest rate / inflation
real interest rate = nominal interest rate + inflation
real interest rate = nominal interest rate - inflation
 
When some dollar amount is automatically corrected for changes in the price level by law
or contract, the amount is said to be ________ for inflation.
  
indexed
added
subtracted
multiplied
 
 
a measure of the cost of a basket of goods and services bought by firms is the
  
producer price index
core CPI
nominal interest rate
consumer price index (CPI)
 
 
A measure of the overall cost of a basket of goods and services purchased by a typical
consumer is the

Real Wage.
Producer Price Index (PPI).  
GDP deflator.
Consumer Price Index (CPI).
 

When some dollar amount is automatically corrected for changes in the price level by law
or contract, the amount is said to be ________ for inflation.
  
added
indexed
multiplied  
subtracted

 
The consumer price index is used to
 
monitor changes in the level of wholesale prices in the economy.  
monitor changes in the level of real GDP over time.
monitor changes in the cost of living over time.
monitor changes in the stock market.
 
 
the interest rate as usually reported without a correction for the effects of inflation is 
  
core CPI
Real interest rate
Nominal interest rate
PPI

 
Inflation is defined as: 
  
the rate of growth in nominal GDP
the growth phase of the business cycle 
a situation where all prices in the economy rise simultaneously.  
an increase in the overall level of prices
 
 
The inflation rate is the
 
absolute change in real GDP from one period to another.
absolute change in the price level from one period to another. 
percentage change in the price level from one period to another.
percentage change in real GDP from one period to another.
 

a measure of the cost of a basket of goods and services bought by firms is the
  
consumer price index (CPI) 
core CPI 
producer price index
nominal interest rate
 
 
When the overall level of prices in the economy is increasing, economists say that the
economy is experiencing
  
inflation
economic growth.
deflation 
stagflation
 
 
The _______ is the most commonly reported measure of inflation by the media.
  
CPI
GDP deflator
GDP deflator
unemployment rate
 
 
A measure of the overall cost of a basket of goods and services purchased by a typical
consumer is the
  
Real Wage. 
Consumer Price Index (CPI).  
Producer Price Index (PPI).  
GDP deflator.
 
 
the interest rate corrected for the effects of inflation is the
  
producer price index
indexation  
real interest rate  
nominal interest rate
 

The CPI is a measure of the overall cost of

  
the inputs purchased by a typical producer. 
the stocks on the New York Stock Exchange.  
the goods and services purchased by a typical consumer 
the goods and services produced in the economy.
 

How does the cost of living for New Jersey compare to the other states?
New Jersey is in the top 10 of the highest cost of living state. New Jersey has some of the highest
taxes in the U.S. It also has some very high home prices, driven in part by its proximity to New
York City. Although the average monthly energy bill is cheaper than the U.S. average.

The United States has one of the lowest and most stable inflation rates in the world. Why is this a
positive for our economy?
Low inflation is good for the GDP and for the growth of the economy. Low inflation is good
since it ensures the cost of essential goods and services remains stable. Low inflation boosts
employment. When people are employed, they have money to spend. When people are buying
more goods and services, the economy grows.

How does the cost of inflation affect the economy?

The costs of inflation include menu costs, shoe leather costs, loss of purchasing power,
and the redistribution of wealth. Menu cost is the cost to a firm resulting from changing
its prices. With high inflation, firms must change their prices often in order to keep up
with economy-wide changes, and this can be a costly activity. Explicity, as with the need
to print new menus, and implicity, as with the extra time and effort needed to change
prices constantly.