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10 Feb 2019

Negative real interests rates imply that if you save today, you can purchase a smaller basket of goods and services in the future, relative to the basket you could have comsumed today.

A) True

B) False

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Tod Thiel
Tod ThielLv2
12 Feb 2019

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Related questions

a) Assuming that money market equilibrium always exists, if the national price level P increases by 5%, and real money demand L increases by 2%, then the nominal money supply M needs to increase by:

a. decrease by 7%.

b. decrease by 3%.

c. increase by 7%.

d. increase by 3%.

b) A real depreciation of the dollar against the euro occurs when:

a. there is a nominal depreciation of the US dollar against the euro which is at a higher rate than the US inflation rate, regardless of the European rate of inflation.

b. there is a nominal depreciation of the US dollar against the euro which is at a higher rate than the sum of the US inflation rate and the European inflation rate.

c. the cost of the US basket in terms of the European basket (European basket per US basket) rises, where "basket" refers to the basket of goods and services used in a country's price index.

d. there is a nominal depreciation of the US dollar against the euro which is at a higher rate than the European inflation rate, regardless of the US rate of inflation.

e. the cost of the European basket in terms of the US basket (US basket per European basket) rises, where "basket" refers to the basket of goods and services used in a country's price index.

2000 2010

Average weekly wage $500 $750

CPI 170 220

The following table list the priced of small market basket purchase in both 2000 and 2010. Assuming that this basket of goods is representative of all goods and services,

(a) Compute the cost of market basket in 2000.

(b) Compute the cost of market basket in 2010

(c) By how much has the average price level risen between 2000 and 2010?

(d) The average household's nominal income increased from $30,000 to $60,000 between 2000 and 2010. What happend to it's real income?

Price (per Unit)

Item Quantity 2000 2010

Coffee 20 pounds $ 4 $ 5

Tuition 1 year 4,ooo 7,000

Pizza 100 pizzas 8 10

DVD rental 90 days 10 5

Gaslone 1,000 gallons 2 3

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.

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