ECO 108 Lecture Notes - Lecture 32: Tax Bracket, Real Interest Rate, Interest Rate

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periwinkleclam946

7 Dec 2016

School

Stony Brook University

Department

Economics

Course

ECO 108

Professor

Eva Poveda

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Document Summary

Inflation - decrease in the value of the dollar (any currency). Consumer price index (cpi): a measure of changes in price. Measures the cost of a standard basket of goods and services in a given year relative to the. Cost of the same basket of goods and services in the base year. Example: basket a cost in 2000. Basket a now costs in 2005. The cost of living has increased by 20%. New year cost / base year cost. New year cost of living is 25% higher than during the base year. Bea ( us bureau of economic and analysis uses cpi as a percentage. The rate of inflation is the annual percentage change in the price level. 2003 cpi = 1. 840

Related Questions

Which of the following statements is true about the consumer price index (cpi):

A.It measures cost of representative basket of goods at the level of first significant commercial transaction

B.It measure of the average prices paid by consumers for all goods and services

C.It is used to measure the standard of living in an economy

D.It measures the average prices paid by consumers for a fixed basket of goods services

E. None of the above

beigebee838

(Consumer Price Index) Calculate a new consumer price index forthe data in the following exhibit. Assume that current-year pricesof Twinkies, fuel oil, and cable TV are $0.95/package,$1.25/gallon, and $15.00/month, respectively. Calculate the current years cost of the market basket and the value of the current years price index. What is this year's percentage change in the price level compared to the base year?

Twinkies: Quantity in Market Basket - 365 packages

Prices in Base Year - $0.89/packages

Cost of Basket in Base Year (2) = (1) x(2) - $324.85

Prices in Current Year - $288.35

Cost of Basket in Current Year (5) =(1)x(4) - $288.35

Fuel Oil - Quantity in Market Basket - 500 gallons

Prices in Base Year - $1.00/gallon

Cost of Basket in Base Year (2) = (1) x (2) - $500

Prices in Current Year - $1.50

Cost of Basket in Current Year (5) = (1)x(4) - $750.00

Cable TV - Quantity in Market Basket - 12 month

Prices in Base Year - $30.00/month

Cost of Basket in Base Year (2) = (1) x (2) -$360.00

Prices in Current Year - $30.00

Cost of Basket in Current Year (5) = (1)x(4) - $360.00

blackskunk877

The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year.

Year	Consumer Price Index	Inflation Rate
2005	100
2006	115	B
2007	125	C
2008	140	D
2009	A	10%
2010	160	E

8.7%

120

25%

12%

The price index was 170 in the first year, 180 in the second year, and 195 in the third year. The inflation rate was about

5.9 percent between the first and second years, and 8.3 percent between the second and third years.

5.6 percent between the first and second years, and 7.7 percent between the second and third years.

10 percent between the first and second years, and 15 percent between the second and third years.

80 percent between the first and second years, and 95 percent between the second and third years.

0.1 points

QUESTION 17

The price index was 150 in the first year, 142.5 in the second year, and 138.2 in the third year. The economy experienced

		5.0 percent deflation between the first and second years, and 3.0 percent deflation between the second and third years.
		7.5 percent deflation between the first and second years, and 4.3 percent deflation between the second and third years.
		5.3 percent inflation between the first and second years, and 4.1 percent inflation between the second and third years.
		7.5 percent inflation between the first and second years, and 4.3 percent inflation between the second and third years

0.1 points

QUESTION 18

Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?

The real interest rate is the nominal interest rate minus the rate of inflation.

The real interest rate is the nominal interest rate times the rate of inflation.

The real interest rate is the nominal interest rate plus the rate of inflation.

The real interest rate is the nominal interest rate divided by the rate of inflation.

0.1 points

QUESTION 19

If the nominal interest rate is 6 percent and the rate of inflation is 2 percent, then the real interest rate is

4 percent.

-4 percent.

3 percent.

8 percent.

0.1 points

QUESTION 20

If the nominal interest rate is 7 percent and the real interest rate is -2.5 percent, then the inflation rate is

9.5 percent.

4.5 percent.

-4.5 percent.

-9.5 percent.

. From 2009 to 2010, the CPI for education increased from 279.3 to 281.8. What was the inflation rate for education between 2009 and 2010?

0.9%

9.0%

2.5%

90%

If the consumer price index changes from 125 in September to 150 in October, what is the rate of inflation?

20.0%

45.5%

16.7%

9.1%

. Suppose a basket of goods and services has been selected to calculate the CPI and 2014 has been selected as the base year. In 2013, the basketâs cost was $80; in 2014, the basketâs cost was $86; and in 2015, the basketâs cost was $90. The value of the CPI in 2015 was

104.6 and the inflation rate was 4.6%.

112.5 and the inflation rate was 4.6%.

112.5 and the inflation rate was 12.5%.

104.6 and the inflation rate was 12.5%.

Suppose a basket of goods and services has been selected to calculate the CPI. In 2002, the basketâs cost was $80; in 2008, the basketâs cost was $92; and in 2010, the basketâs cost was $108. The base year must be

The base year cannot be determined from the given information.

2002

2008

one of the years between 2008 and 2010.

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been chosen as the base year. In 2012, the basketâs cost was $80.00; in 2013, the basketâs cost was $84; and in 2014, the basketâs cost was $87.60. The value of the CPI was

All of the above are correct.

109.5 in 2014.

105 in 2013.

100 in 2012.

Which of the following is correct?

The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers.

The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers.

The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers.

The GDP deflator is more commonly used as a gauge of inflation than the CPI is.

The inflation rate is defined as the

percentage change in the price level from the previous period.

price level in an economy.

change in the price level from one period to the next.

price level minus the price level from the previous period.

Economists use the term inflation to describe a situation in which

the economy's overall price level is rising.

some prices are rising faster than others.

the economy's overall price level is high, but not necessarily rising.

the economy's overall output of goods and services is rising faster than the economy's overall price level.

ECO 108 Lecture Notes - Lecture 32: Tax Bracket, Real Interest Rate, Interest Rate

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