ECON 224 Final Study Guide.docx

ECON 224 Final Study Guide.docx - ECON 224 Final Study...

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ECON 224 Final Study Guide Nominal Interest Rate: The interest rate usually reported and not corrected for inflation Real Interest Rare: Nominal interest rate that is corrected for the effects of inflation Equals the nominal interest rate minus the rate of inflation Consumer price index: Imperfect measure of the cost of living for substitution bias, the introduction of new goods, and unmesured changes in quality Reflects the prices of goods and services bought domestically Uses a fixed basket of goods VArious laws and private contacts use price indexes to correct the effects of inflation GDP Deflator: Nominal GDP X 100 Real GDP Differs from CPI because it includes goods and services produced rther than goods and services consumed Reflects the prices of all goods and services produced domestically Automatically changes the group of goods and services over time as the compostion of GDP changes Assignment #8 Ch. 16 Measuring the Cost of Living 1. The CPI is a measure of the overall cost of the goods and services bought by: - A typical consumer, and the CPI is computed and reported by the Department of the Treasury 2. The Steps involved in calculating the consumer price index and the inflation rate in order as it follows: - Fix the basket, find the prices, compute the basket’s cost, choose a base year and compute the index, and compute the inflation ra te. 3. What basket of goods and services is used to construct the CPI -The goods and services that re typically bought by consumers as determined by the government surveys
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4. Consider a small economy in which consumers buy only two goods: pretzels and cookies. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that -Neither the number of pretzels nor the number of cookies bought by the typical consumer changes from year to year 5, When computing the cost of the basket of goods and services purchased by a typical consumer, which of the following changes from year to year? -The prices of goods and services 6. in computing the consumer price index, a base year is chosen. Which of the following statements about the base year is correct? -The value of the consumer price index is always 100 in the base year 7. For any given year, the CPI is the price of the basket of goods and services in the -Given year divided by the price of the basket in the base year, then multiplied by 100 8. If 2002 is the base year, then the inflation rate in 2005 equals -CPI- in 2005 -CPI in 2004 CPI IN 2002 9. Suppose a basket of goods and services has been selected to calculate the CPI and 2002 has been chosen as the base year. In 2002, the basket’s cost was $75.00; in 2004, the basket’s cost was $79.50; and in 2006, the basket’s cost was $85.86. The value of the CPI was ] -100 in 2002, 106 in 2004, 113.48 in 2006, all the above 10. Between October 2001 and October 2002, the CPI in Canada rose from 116.5 to 119.8 and the CPI in Mexico rose from 93.2 to 102.3. What were the inflation rates for Canada and Mexico over this one-year period - 2.8 percent for Canada and 9.8 percent for mexico
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11. Refer to Table 24-1. If 2005 is the base year, then the inflation rate in 2006 was
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  • Fall '16
  • McKeever,R
  • Inflation, Consumer price index

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