ECON10003 Chapter Notes - Chapter 1-2: Autarky, Interest Rate, Real Interest Rate

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salmonweasel666

31 Jul 2018

School

University of Melbourne

Department

Economics

Course

ECON10003

Professor

Nahid Khan, Lawrence Uren

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Document Summary

Inflation and interest rates & saving, wealth and investment. Inflation erodes the real purchasing power of any given amount of cash. Income tax increasing percentage of their income: unexpected redistribution of wealth, borrowers gain and lenders lose, workers less purchasing power. 2. 1 saving and wealth: saving: current income minus spending on current needs, saving rate: the proportion of total income devoted to saving. Saving: stock: a measure that is defined at a point in time, e. g. Wealth: capital gains and losses, capital gains: increases in the value of existing assets, capital losses: decreases in the value of existing assets, change in wealth = saving + capital gains + capital losses. Individuals increase saving as the real interest rate rises: firms reduce investment as the real interest rate rises, a country can invest only those resources that its savers make available.

Related Questions

The substitution bias in the consumer price index refers to the:

a. substitution by consumers toward new goods and away from old goods.

b. substitution by consumers toward a smaller number of high-quality goods and away from a larger number of low-quality goods.

c. substitution by consumers toward goods that have become relatively less expensive and away from goods that have become relatively more expensive.

d. substitution of new prices for old prices in the CPI basket of goods and services from one year to the next.

An advantage of the personal consumption expenditures price index (PCE) over the consumer price index (CPI) as a measure of inflation is that the PCE

A) includes the prices of consumer goods, but not consumer services.

B) includes the prices of consumer services, but not consumer goods.

C) includes the prices of more consumer goods and services.

D) is a fixed market-basket price index that does not allow the mix of products to change each year

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1. The peak of the business cycle

a. usually occurs when the natural rate of unemployment is equal to its actual rate.

b. is the point where an expansion ends and a recession begins

c. is the minimum level of nominal GDP.

2. The consumer price index (CPI) reflects

a. the median annual expenditures of a typical single family of four on consumer goods

b. the average price of all goods and services computed from the ratio of nominal GDP to real GDP.

c. the changes in the prices of goods and services typically purchased by consumers.

3. The Consumer Price Index is NOT used

a. to measure the average price level of all final goods and services produced

b. to compute the U.S. inflation rate.

c. to measure changes in the cost of living

4. Which of the following is true of a price index that uses a fixed market basket?

a. It excludes new goods and services

b. It accurately predicts the impact of rising prices when purchases are made at superstores.

c. It overstates the importance of items that fall in price.

5. A quality-change bias in the construction of the CPI arises because

a. big box stores that carry electronic goods routinely run sales to reduce their inventories before stocking new models.

b. consumers also shop at superstores or outlet stores

c. newer versions of a product might be more expensive but could also be better than the older version.

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ECON10003 Chapter Notes - Chapter 1-2: Autarky, Interest Rate, Real Interest Rate

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