If the Prices of the Goods and Services Contained in the CPI

question 261

Multiple Choice

If the prices of the goods and services contained in the CPI market basket increase from the base period to the next year,we know that

• A)the inflation rate is falling.
• B)the next year's CPI will be above 100.
• C)the next year's CPI will be below 100.
• D)the cost of the CPI market basket at next year's prices is lower than the cost of the CPI market basket at base period prices.
• E)the market basket used by the BLS must be changed next year to reflect consumers' new expenditures.

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Definitions:

Compounding Interval

The frequency at which interest is applied to the principal sum of a loan or deposit, affecting the total interest earned or paid.

Compounded Nominal Rate

The rate of interest quoted for a period, usually a year, without taking into account the effect of compounding within that period.

Effective Rate

The actual interest rate of an investment or loan, taking into account the effect of compounding interest as opposed to the nominal or stated rate.

Annuity

A monetary product designed to deliver regular payouts, mainly aimed at funding retirees' income needs.