Match the correct answer to the appropriate box. Price Indexes and Inflation True or False: Show your work if needed. 1. Inflation typically falls in recessions and increases in good times.i 2. The GDP deflator is a price index which fixes quantities in the base year. 3. The CPI typically shows a higher rate of inflation than the sDP deflator. - - - - - - --- 4. If the GDP deflator were 150 in 2010 and goes up to 160 in 2011, the inflation Tate concurated in 2011 would be 10 percent. r - 5. One problem with LITe GUH venator is that it neglects the substitution effect. " 6. The substitution effect is the tendency of people to buy relatively more of luxury goods when their income rises." - - 7. The real interest rate is the nominal interest rate divided by a price index. 8. Unexpected inflation will benefit banks and other lenders. 9. Falling prices automatically benefit all sectors of an economy. 10. Sudden and unexpected deflation is more likely to be harmful to economic growth than sudden and unexpected inflation. r - 11. The United States has not seen deflation since the Great Depression. Consider that the CPI for 2008 was 215.3 and in 2009 it was 214.5 - 12. Prices of goods and services which are labor-intensive tend to be sticky; prices of goods that are raw materials intensive tend to be flexible. " - - 13. The CPI was 215 in 2008 and 214 in 2009. The rate of inflation was about negative half a percent between 2008 and 2009. (See the more exact calculation in question 12). 14. It is normally the case that the GDP deflator shows a higher rate of inflation than the CPI, :: True :: False