Question: The price index was 120 in 2012 and 126 in 2013. What was the inflation rate?

Answer: 5.0 percent

126-120/120 x 100

Question: If the current year CPI is 140, then the price level has increased 40 percent since the base year.

Answer: True

Question: If the nominal interest rate is 5 percent and the inflation rate is 2 percent, then the real interest rate is 7 percent

Answer: False

real interest rate= nominal interest rate - inflation rate

Question: In the United States, if the price of imported oil rises so that the prices of gasoline and heating oil rise, then the

Answer: consumer price index rises much more than does the GDP deflator.

Question: When a new good is introduced, consumers have more variety from which to choose, and this in turn increases the cost of maintaining the same level of economic well-being.

Answer: False, it reduces

Question: An increase in the price of bread produced domestically will be reflected in

Answer: the GDP deflator but not in the consumer price index. Wrong

Question: In the late 1970s, U.S. nominal interest rates were high and real interest rates were low, but in the late 1990s, U.S. nominal interest rates were low and real interest rates were high.

Answer: True

Question: When the consumer price index is computed, the base year is always the first year among the years being considered.

Answer: False

Question: Suppose that in 2018, the producer price index increases by 1.5 percent. As a result, economists most likely will predict that

Answer: the consumer price index will increase in the future.

Question: If you currently make $25,000 a year and the CPI rises from 110 today to 150 in five years, then you need to be making $43,333.33 in five years to have kept pace with consumer price inflation.

Answer: False