Question 1

If the CPI increases from 110 to 125 for one year,the rate of inflation for that year is

Accepted Answer

A) 15 percent. 
B) 13.6 percent. 
C) 1.13 percent. 
D) 50 percent. 
A) 15 percent. 
B) 13.6 percent. 
C) 1.13 percent. 
D) 50 percent.

Question 2

Price stability

Accepted Answer

A) Is defined as a 0 percent rate of inflation in the Full Employment and Balanced Growth Act of 1978. 
B) Is targeted at a 3 percent rate of inflation by Alan Greenspan,the head of the Federal Reserve. 
C) Has been officially set by Congress at 3 percent or less. 
D) Has been achieved consistently in the 20th century in the United States. 
A) Is defined as a 0 percent rate of inflation in the Full Employment and Balanced Growth Act of 1978. 
B) Is targeted at a 3 percent rate of inflation by Alan Greenspan,the head of the Federal Reserve. 
C) Has been officially set by Congress at 3 percent or less. 
D) Has been achieved consistently in the 20th century in the United States.

Question 3

Assume the CPI increases from 110 to 121,and Manny's nominal income increases from $100,000 to $120,000 over the same period.Manny's real income has

Accepted Answer

A) Increased by approximately 12 percent. 
B) Increased by approximately 9 percent. 
C) Decreased by approximately 8 percent. 
D) Remained the same. 
A) Increased by approximately 12 percent. 
B) Increased by approximately 9 percent. 
C) Decreased by approximately 8 percent. 
D) Remained the same.

Question 4

Table 7.2 GDP for Newland
$$\begin{array} { | l | r | c | r | } 
\hline & \begin{array} { c } 
\text { Nominal GDP(in billions of } \
\text { dollars) }
\end{array} & \text { GDP deflator } & { \text { CPI } } \
\hline 2001 & \$ 5,900 & 120.1 & 128.3 \
\hline 2002 & 6,300 & 123.0 & 131.7 \
\hline 2003 & 6,800 & 126.3 & 136.5 \
\hline
\end{array}$$ Based on Table 7.2,the rate of inflation between 2001 and 2002 using the CPI was

Accepted Answer

A) 2.65 percent. 
B) 2.58 percent. 
C) 3.40 percent. 
D) 2.02 percent. 
A) 2.65 percent. 
B) 2.58 percent. 
C) 3.40 percent. 
D) 2.02 percent.

Question 5

If the nominal interest rate is 6 percent and the anticipated rate of inflation is 6 percent,the real interest rate is

Accepted Answer

A) 6 percent. 
B) 12 percent. 
C) 3 percent. 
D) 0 percent. 
A) 6 percent. 
B) 12 percent. 
C) 3 percent. 
D) 0 percent.

Question 6

If the price of iPods rises 10 percent during a year when the level of average prices rises 3 percent,the relative price of iPods compared with other goods

Accepted Answer

A) Remains constant. 
B) Increases. 
C) Decreases. 
D) More information is required to answer this question. 
A) Remains constant. 
B) Increases. 
C) Decreases. 
D) More information is required to answer this question.

Question 7

Last year you earned $20,000 and paid taxes in the second tax bracket at 15 percent.This year you earned $25,000,the extra $5,000 just compensating you for inflation.However,this year you paid taxes in the third bracket at 20 percent.This illustrates the concept of

Accepted Answer

A) Stagflation. 
B) Speculation. 
C) Deflation. 
D) Bracket creep. 
A) Stagflation. 
B) Speculation. 
C) Deflation. 
D) Bracket creep.

Question 8

According to Figure 7.1,which of the following statements was definitely true about Country B?

Accepted Answer

A) Relative prices were changing. 
B) The average price in general increased over the time period 1970 to 1995. 
C) Real incomes were increasing. 
D) The price level was about the same in 1970 and 1995. 
A) Relative prices were changing. 
B) The average price in general increased over the time period 1970 to 1995. 
C) Real incomes were increasing. 
D) The price level was about the same in 1970 and 1995.

Question 9

If OPEC raises the price of oil and production costs increase,this may cause

Accepted Answer

A) Cost-push inflation. 
B) Demand-pull inflation. 
C) Hyperinflation. 
D) Super-pull inflation. 
A) Cost-push inflation. 
B) Demand-pull inflation. 
C) Hyperinflation. 
D) Super-pull inflation.

Question 10

The base period is the

Accepted Answer

A) Time period used for comparative analysis. 
B) Absence of significant changes in the average price level. 
C) Time period when full employment is reached. 
D) First year in which inflation figures were calculated. 
A) Time period used for comparative analysis. 
B) Absence of significant changes in the average price level. 
C) Time period when full employment is reached. 
D) First year in which inflation figures were calculated.

Question 11

The CPI is a measure of changes in the average price of consumer goods and services.

Accepted Answer

A) True 
 B)False

Question 12

Changes in relative prices may occur in a period of

Accepted Answer

A) Stable prices only. 
B) Inflation only. 
C) Deflation only. 
D) Stable prices,inflation,or deflation. 
A) Stable prices only. 
B) Inflation only. 
C) Deflation only. 
D) Stable prices,inflation,or deflation.

Question 13

Hyperinflation is

Accepted Answer

A) An inflation rate in excess of 200 percent,lasting at least one year. 
B) An inflation rate in excess of 20 percent,lasting at least one year. 
C) A common problem in the United States. 
D) The movement of taxpayers to higher tax brackets because of rising prices. 
A) An inflation rate in excess of 200 percent,lasting at least one year. 
B) An inflation rate in excess of 20 percent,lasting at least one year. 
C) A common problem in the United States. 
D) The movement of taxpayers to higher tax brackets because of rising prices.

Question 14

If nominal GDP is constant,then the GDP deflator varies inversely with

Accepted Answer

A) The unemployment rate. 
B) Real GDP. 
C) COLAs. 
D) The CPI. 
A) The unemployment rate. 
B) Real GDP. 
C) COLAs. 
D) The CPI.

Question 15

In the Full Employment and Balanced Growth Act of 1978,

Accepted Answer

A) Congress set an inflation goal of no more than 3 percent. 
B) The president set an inflation goal of 0 percent. 
C) Alan Greenspan set an inflation goal of 0 percent. 
D) An unemployment goal of 4 percent was set,but no inflation goal could be set. 
A) Congress set an inflation goal of no more than 3 percent. 
B) The president set an inflation goal of 0 percent. 
C) Alan Greenspan set an inflation goal of 0 percent. 
D) An unemployment goal of 4 percent was set,but no inflation goal could be set.

Question 16

The undesirable effects of bracket creep can be eliminated by indexing marginal tax rates.

Accepted Answer

A) True 
 B)False

Question 17

Comparing changes in relative prices is more useful than examining average prices in

Accepted Answer

A) Determining the redistribution of income. 
B) Determining the inflation rate. 
C) Deflating nominal income. 
D) Determining if there is deflation. 
A) Determining the redistribution of income. 
B) Determining the inflation rate. 
C) Deflating nominal income. 
D) Determining if there is deflation.

Question 18

When the price of a product rises faster than the inflation rate,

Accepted Answer

A) Nominal incomes of the consumers of that product fall. 
B) Users of that product have higher real incomes than people who do not consume the product. 
C) Nominal incomes of the consumers of that product rise. 
D) Real incomes of the consumers of that product fall. 
A) Nominal incomes of the consumers of that product fall. 
B) Users of that product have higher real incomes than people who do not consume the product. 
C) Nominal incomes of the consumers of that product rise. 
D) Real incomes of the consumers of that product fall.

Question 19

Uncertainty and speculation are microeconomic consequences of inflation.

Accepted Answer

A) True 
 B)False

Question 20

If the CPI increases from 250 to 275 for one year,the rate of inflation for that year is

Accepted Answer

A) 13 percent. 
B) 10 percent. 
C) 25 percent. 
D) 15 percent. 
A) 13 percent. 
B) 10 percent. 
C) 25 percent. 
D) 15 percent.

Exam 7: Inflation

If the CPI increases from 110 to 125 for one year,the rate of inflation for that year is

Price stability

Assume the CPI increases from 110 to 121,and Manny's nominal income increases from $100,000 to $120,000 over the same period.Manny's real income has

Table 7.2 GDP for Newland Nominal GDP(in billions of dollars) GDP deflator CPI 2001 \ 5,900 120.1 128.3 2002 6,300 123.0 131.7 2003 6,800 126.3 136.5 Based on Table 7.2,the rate of inflation between 2001 and 2002 using the CPI was

If the nominal interest rate is 6 percent and the anticipated rate of inflation is 6 percent,the real interest rate is

If the price of iPods rises 10 percent during a year when the level of average prices rises 3 percent,the relative price of iPods compared with other goods

Last year you earned $20,000 and paid taxes in the second tax bracket at 15 percent.This year you earned $25,000,the extra $5,000 just compensating you for inflation.However,this year you paid taxes in the third bracket at 20 percent.This illustrates the concept of

According to Figure 7.1,which of the following statements was definitely true about Country B?

If OPEC raises the price of oil and production costs increase,this may cause

The base period is the

The CPI is a measure of changes in the average price of consumer goods and services.

Changes in relative prices may occur in a period of

Hyperinflation is

If nominal GDP is constant,then the GDP deflator varies inversely with

In the Full Employment and Balanced Growth Act of 1978,

The undesirable effects of bracket creep can be eliminated by indexing marginal tax rates.

Comparing changes in relative prices is more useful than examining average prices in

When the price of a product rises faster than the inflation rate,

Uncertainty and speculation are microeconomic consequences of inflation.

If the CPI increases from 250 to 275 for one year,the rate of inflation for that year is

Economics: the Core Issues

The Useconomy: a Global View

Supply and Demand

The Role of Government

National Income Accounting

Unemployment

The Business Cycle

Aggregate Demand

Self-Adjustment or Instability

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Deficits and Debt

Money and Banks

The Federal Reserve System

Monetary Policy

Supply-Side Policy: Short-Run Options

Growth and Productivity: Long-Run Possibilities

Theory Versus Reality

Consumer Choice

Elasticity

The Costs of Production

The Competitive Firm

Competitive Markets

Monopoly

Oligopoly

Monopolistic Competition

Natural Monopolies: Deregulation

Environmental Protection

The Farm Problem

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Labor Unions

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Taxes: Equity Versus Efficiency

Transfer Payments: Welfare and Social Security

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