Question 1

Which of the following indexes tracks changes in the average prices paid by consumers?

Accepted Answer

A) CPI. 
B) PPI. 
C) GDP deflator. 
D) The market basket. 
A) CPI. 
B) PPI. 
C) GDP deflator. 
D) The market basket.

Question 2

All of the following are detrimental macro consequences of inflation except

Accepted Answer

A) Uncertainty. 
B) Speculation. 
C) Bracket creep. 
D) COLAs. 
A) Uncertainty. 
B) Speculation. 
C) Bracket creep. 
D) COLAs.

Question 3

The real interest rate is the rate of inflation minus the nominal interest rate.

Accepted Answer

A) True 
 B)False

Question 4

The price index that refers to all final goods and services produced in a country is the

Accepted Answer

A) GDP deflator. 
B) PPI. 
C) CPI. 
D) GDP inflator. 
A) GDP deflator. 
B) PPI. 
C) CPI. 
D) GDP inflator.

Question 5

If the price of your cell phone service increases from $70 to $105 over a period of one year and your income rises from $1,500 to $1,525,your nominal income has

Accepted Answer

A) Increased,and your real income has increased. 
B) Increased,but your real income has decreased. 
C) Decreased,and your real income has decreased. 
D) Increased,but your real income has remained the same. 
A) Increased,and your real income has increased. 
B) Increased,but your real income has decreased. 
C) Decreased,and your real income has decreased. 
D) Increased,but your real income has remained the same.

Question 6

Table 7.1 GDP
$$\begin{array} { | l | r | c | r | } 
\hline & \begin{array} { c } 
\text { Nominal GDP(in billions of } \
\text { dollars) }
\end{array} & \text { GDP deflator } & { \text { CPI } } \
\hline 2002 &\$6,992.4 & 106.2 & 151.6 \
\hline 2003 & 7,431.6 & 109.1 & 153 .8 \
\hline 2004 & 7,843.2 & 112.3 & 157 .8 \
\hline
\end{array}$$ Based on Table 7.1,the rate of inflation between 2003 and 2004,using the GDP deflator,was

Accepted Answer

A) 2.4 percent. 
B) 2.9 percent. 
C) 6.2 percent. 
D) 4.1 percent. 
A) 2.4 percent. 
B) 2.9 percent. 
C) 6.2 percent. 
D) 4.1 percent.

Question 7

During the time period represented in Figure 7.1,Country A

Accepted Answer

A) Experienced periods of both inflation and deflation. 
B) Never achieved the inflation goal set by the Full Employment and Balanced Growth Act of 1978. 
C) Had no need for COLAs. 
D) Experienced only inflation. 
A) Experienced periods of both inflation and deflation. 
B) Never achieved the inflation goal set by the Full Employment and Balanced Growth Act of 1978. 
C) Had no need for COLAs. 
D) Experienced only inflation.

Question 8

To compute the real income of a household,the index that should be used is the

Accepted Answer

A) Producer Price Index (PPI). 
B) Consumer Price Index (CPI). 
C) GDP deflator. 
D) Cost of Living Adjustment (COL
A) . 
A) Producer Price Index (PPI). 
B) Consumer Price Index (CPI). 
C) GDP deflator. 
D) Cost of Living Adjustment (COL
A) .

Question 9

If your real income rises but your nominal income falls,then you benefit from deflation.

Accepted Answer

A) True 
 B)False

Question 10

The most desirable inflation rate is the rate that

Accepted Answer

A) Equals the official goal of 3 percent. 
B) Has the least effect on the behavior of companies,investors,consumers,and workers. 
C) Maximizes the "wealth effect" of inflation. 
D) Coincides with an unemployment rate of 0 percent. 
A) Equals the official goal of 3 percent. 
B) Has the least effect on the behavior of companies,investors,consumers,and workers. 
C) Maximizes the "wealth effect" of inflation. 
D) Coincides with an unemployment rate of 0 percent.

Question 11

Table 7.1 GDP
$$\begin{array} { | l | r | c | r | } 
\hline & \begin{array} { c } 
\text { Nominal GDP(in billions of } \
\text { dollars) }
\end{array} & \text { GDP deflator } & { \text { CPI } } \
\hline 2002 & \$6,992.4 & 106.2 & 151.6 \
\hline 2003 & 7,431.6 & 109.1 & 153 .8 \
\hline 2004 & 7,843.2 & 112.3 & 157 . 8\
\hline
\end{array}$$ Based on Table 7.1,the real GDP for 2004 was

Accepted Answer

A) $4,970.3 billion. 
B) $6,811.7 billion. 
C) $6,584.2 billion. 
D) $6,984.1 billion. 
A) $4,970.3 billion. 
B) $6,811.7 billion. 
C) $6,584.2 billion. 
D) $6,984.1 billion.

Question 12

Income in constant dollars is

Accepted Answer

A) Nominal income. 
B) Real income. 
C) Bracket creep. 
D) Income effect. 
A) Nominal income. 
B) Real income. 
C) Bracket creep. 
D) Income effect.

Question 13

If your nominal income rises faster than the price level,

Accepted Answer

A) Your real income has fallen. 
B) Your real income has risen. 
C) You can buy fewer goods and services. 
D) There must be deflation. 
A) Your real income has fallen. 
B) Your real income has risen. 
C) You can buy fewer goods and services. 
D) There must be deflation.

Question 14

Which of the following is a macro consequence of a sudden increase in the average level of prices?

Accepted Answer

A) People on fixed incomes benefit. 
B) Uncertainty is greater. 
C) Nominal income falls by a smaller percentage than real income. 
D) People lengthen their time horizons. 
A) People on fixed incomes benefit. 
B) Uncertainty is greater. 
C) Nominal income falls by a smaller percentage than real income. 
D) People lengthen their time horizons.

Question 15

During a period of unanticipated inflation,

Accepted Answer

A) Debtors are better off and creditors are worse off. 
B) Debtors and creditors are both better off because of lower real interest rates. 
C) Individuals on fixed incomes are better off. 
D) All individuals are worse off because of the level of uncertainty. 
A) Debtors are better off and creditors are worse off. 
B) Debtors and creditors are both better off because of lower real interest rates. 
C) Individuals on fixed incomes are better off. 
D) All individuals are worse off because of the level of uncertainty.

Question 16

Which of the following groups is protected from a sudden increase in inflation?

Accepted Answer

A) Borrowers who have loans at fixed interest rates. 
B) Fixed-income groups. 
C) Workers who receive fixed wages under multiyear contracts. 
D) People who rent their homes under short-term leases in comparison with those who own their homes. 
A) Borrowers who have loans at fixed interest rates. 
B) Fixed-income groups. 
C) Workers who receive fixed wages under multiyear contracts. 
D) People who rent their homes under short-term leases in comparison with those who own their homes.

Question 17

Nominal GDP is the

Accepted Answer

A) Price index that refers to all goods and services included in GDP. 
B) Value of final output produced using American-owned factors of production. 
C) Value of final output produced,measured in current prices. 
D) Value of final output produced,adjusted for changing prices. 
A) Price index that refers to all goods and services included in GDP. 
B) Value of final output produced using American-owned factors of production. 
C) Value of final output produced,measured in current prices. 
D) Value of final output produced,adjusted for changing prices.

Question 18

Which of the following explains why redistribution occurs during inflation?

Accepted Answer

A) Rising prices fail to signal desirable changes in the mix of output. 
B) Because all prices do not change at the same rate,people buy different combinations of goods and services and own different combinations of wealth. 
C) Relative prices remain unchanged. 
D) All loans are indexed to inflation. 
A) Rising prices fail to signal desirable changes in the mix of output. 
B) Because all prices do not change at the same rate,people buy different combinations of goods and services and own different combinations of wealth. 
C) Relative prices remain unchanged. 
D) All loans are indexed to inflation.

Question 19

Generally speaking,which of the following groups would tend to gain real income from the wealth effects of inflation?

Accepted Answer

A) People with fixed income. 
B) People who have savings accounts at fixed rates of interest. 
C) People who own assets that are appreciating faster than the inflation rate. 
D) People who hold all of their assets in the form of cash. 
A) People with fixed income. 
B) People who have savings accounts at fixed rates of interest. 
C) People who own assets that are appreciating faster than the inflation rate. 
D) People who hold all of their assets in the form of cash.

Question 20

A decrease in the average level of prices of goods and services is

Accepted Answer

A) Deflation. 
B) Recession. 
C) Depression. 
D) Inflation. 
A) Deflation. 
B) Recession. 
C) Depression. 
D) Inflation.

Exam 7: Inflation

Which of the following indexes tracks changes in the average prices paid by consumers?

All of the following are detrimental macro consequences of inflation except

The real interest rate is the rate of inflation minus the nominal interest rate.

The price index that refers to all final goods and services produced in a country is the

If the price of your cell phone service increases from $70 to $105 over a period of one year and your income rises from $1,500 to $1,525,your nominal income has

Table 7.1 GDP Nominal GDP(in billions of dollars) GDP deflator CPI 2002 \6 ,992.4 106.2 151.6 2003 7,431.6 109.1 153.8 2004 7,843.2 112.3 157.8 Based on Table 7.1,the rate of inflation between 2003 and 2004,using the GDP deflator,was

During the time period represented in Figure 7.1,Country A

To compute the real income of a household,the index that should be used is the

If your real income rises but your nominal income falls,then you benefit from deflation.

The most desirable inflation rate is the rate that

Table 7.1 GDP Nominal GDP(in billions of dollars) GDP deflator CPI 2002 \6 ,992.4 106.2 151.6 2003 7,431.6 109.1 153.8 2004 7,843.2 112.3 157.8 Based on Table 7.1,the real GDP for 2004 was

Income in constant dollars is

If your nominal income rises faster than the price level,

Which of the following is a macro consequence of a sudden increase in the average level of prices?

During a period of unanticipated inflation,

Which of the following groups is protected from a sudden increase in inflation?

Nominal GDP is the

Which of the following explains why redistribution occurs during inflation?

Generally speaking,which of the following groups would tend to gain real income from the wealth effects of inflation?

A decrease in the average level of prices of goods and services 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

Fiscal Policy

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

The Labor Market

Labor Unions

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Taxes: Equity Versus Efficiency

Transfer Payments: Welfare and Social Security

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