18.During the 1973-1975 recession, GDP growth was about -3% and the percent change in prices was about 13%. This combination of GDP growth and percent change in prices is referred to as:A) inflationB) deflationC) stagflationD) recessionE) none of the above are correctCorrect Answer(s):CPoints Earned:3.0/3.019.Which of the following cause the unemployment rate as measured by the Bureau of Labor Statistics to understate the true extent of joblessness?Points Earned:3.0/3.020.Use the table below to answer questions 20-23The table below shows the ‘hypothetical’ basket(s) of consumption goods for a 'typical' Penn State college student for 2012 and 2013.2012 Basket for ‘typical2013 Basket for ‘typical

PSU college student’PSU college student’ItemPriceQuantityItemPrice QuantityTextbooks$806Textbooks$906Rent$700 1Rent$800 1PSU sporting events$156PSU sporting events$203Dinners in StateCollege$256Dinners in StateCollege$258Assume 2012 is the base year. The rate of inflation between 2012 and 2013 is ____%. NOTE: calculate the rate of inflation using price indexes.Feedback:6*80+1*700+6*15+6*25=14206*90+1*800+6*20+6*25=1610PI2012=100PI2013=(1610/1420)*100 = 113.38Inflation=[(113.38-100)/100]*100 = 13.38%Points Earned:0.0/3.0Correct Answer(s):D21.Now update the base year to 2013. The rate of inflation between 2012 and 2013 is now _____%.NOTE: calculate the rate of inflation using price indexes.

Feedback:6*90+1*800+3*20+8*25=16006*80+1*700+3*15+8*25=1425PI2012=(1425/1600)*100 = 89.0625PI2013 = 100Inflation: [(100-89.0625)/89.0625]*100 = 12.28%Points Earned:0.0/3.022.Which rate of inflation accounts for the substitution bias?A) the inflation rate from #20 (using 2012 as the base year)B) the inflation rate from #21 (using 2013 as the base year)Feedback: The answer in #21 (using base year 2013) accounts for the substitution bias. Note that the price of sporting events increased in 2013, so the student rationally substituted away from sporting events. The inflation rate from #20 (2012 base year) includes lots of substitution bias.Points Earned:3.0/3.0Correct Answer(s):B23.The ‘Chain Weighted’ rate of inflation is ___%.

Feedback: square root(113.38+112.28)-100 = 12.83%Points Earned:3.0/3.024.Use the table below to answer questions 24 - 27NominalInterestRatePriceindex(CPI)ExpectedInflationJune 1,20082.42217.4635.1June 1,2009214.791Notes:-June 2009 is the last month of the Great recession - the official recovery, began in July of 2009 -expected inflation data is one year hence, so expected inflation for the period from June 1, 2008 to June 1, 2009 is given in June 2008. So the data in the table indicates that in June of 2008, inflation was expected to be 5.1% over the next 12 monthsUse the provided CPI data to calculate the actual inflation rate that occurred between June 2008 and June 2009 (hint: just calculate the % change in the CPI).