Macroeconomic Policy Basics

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Questions and Answers

What is the first goal of macroeconomic policy?

Price stability
Full employment
Economic growth (correct)
Stable inflation

A little inflation is considered a bad thing by economists.

False (B)

What does unanticipated inflation typically affect?

It affects various people and firms differently based on their financial situation.

The formula for calculating the rate of inflation is: Rate of inflation = ______.

Difference in price levels / Original price level x 100 Signup and view all the answers

Match the following groups with their outcomes during unanticipated inflation:

Lenders at fixed interest rates = Lose Borrowers at fixed interest rates = Win People on fixed incomes = Lose Real estate owners = Win Signup and view all the answers

What was the annual rate of inflation in the U.S. in August 2022?

8.3% (C) Signup and view all the answers

What is a market basket?

A hypothetical set of consumer purchases used to calculate a price index. Signup and view all the answers

Hyperinflation refers to a very high and typically accelerating rate of inflation.

True (A) Signup and view all the answers

What is the purpose of using the Consumer Price Index (CPI) in price calculations?

To convert nominal prices into real prices (C) Signup and view all the answers

Real prices always reflect the value of money in terms of the base year.

True (A) Signup and view all the answers

How would you calculate the real price of a movie ticket from 1972 in 2016 dollars?

Multiply the nominal price by the CPI of the base year and divide by the CPI of the year in question. Signup and view all the answers

In order to find out how much $250,000 in 2019 would be worth in 2022, one must use the ______.

CPI Signup and view all the answers

Match the following nominal prices with their respective years:

$1.75 = 1972 $2.45 = 1982 $63 = 1998 $127 = 2022 Signup and view all the answers

Which of the following statements about nominal and real prices is correct?

Real prices are adjusted for changes in purchasing power. (D) Signup and view all the answers

If you earned $10 an hour in 1994, what additional amount would you need to earn in 1995 to maintain the same purchasing power?

It depends on the inflation rate between 1994 and 1995. Signup and view all the answers

The CPI can be used to compare the purchasing power of money across different years.

True (A) Signup and view all the answers

What does a price index measure?

The price level of goods (C) Signup and view all the answers

The Consumer Price Index (CPI) reflects the average cost of a market basket of goods in the U.S.

True (A) Signup and view all the answers

What was the average cost of a new car in 2016?

33,560 Signup and view all the answers

To calculate the price index, you divide the ______ cost by the base-year cost.

given-year Signup and view all the answers

Match the item to its associated cost in the base year:

Quesadilla = $5.00 Floppy disks = $6.00 Christmas ornament = $1.50 Signup and view all the answers

What is the total spending for the market basket in the base year?

$480.00 (B) Signup and view all the answers

In 2016, the average cost of a new car decreased compared to 1950.

False (B) Signup and view all the answers

What does CPI stand for?

Consumer Price Index Signup and view all the answers

Flashcards

Inflation

An increase in the overall price level of goods and services in an economy.

Aggregate Price Level

A measure of the overall level of prices in the economy.