Q7. Kim's nominal income is $75,000. If the consumer price index is 75, Kim's real income is ________ in base year prices.

a.$100,000

b.$75,075

c.$56,250

Q8. Why are certain policy decisions (like those undertaken by the Federal Reserve) best informed by using the core inflation index as opposed to the CPI?

a.Food and energy prices do not affect the cost of living for consumers.

b.Food and energy prices are notoriously difficult to calculate.

c.Fluctuations in food and energy prices can be transitory.

Q9. In the base year in a small island macroeconomy, nominal GDP was $400m. In a later year when the general level of all prices was twice as high, nominal GDP reached $1000m. Between the base year and the later year:

a.there was real GDP growth by more than 100%.

b.inflation occurred.

c.real GDP declined.