Question 1

Speculation during periods of inflation can result in all of the following except

Accepted Answer

A) People buying resources for resale later,rather than using the resources for current production. 
B) A movement inward from the production possibilities curve. 
C) People buying gold,silver,jewelry,and the like instead of capital for production. 
D) More resources going into the production process. 
A) People buying resources for resale later,rather than using the resources for current production. 
B) A movement inward from the production possibilities curve. 
C) People buying gold,silver,jewelry,and the like instead of capital for production. 
D) More resources going into the production process.

Question 2

If the CPI doesn't measure product quality improvements,the CPI tends to

Accepted Answer

A) Understate the inflation rate. 
B) Overstate the inflation rate. 
C) Understate economic growth. 
D) Be artificially low. 
A) Understate the inflation rate. 
B) Overstate the inflation rate. 
C) Understate economic growth. 
D) Be artificially low.

Question 3

Which of the following is not true about your nominal income?

Accepted Answer

A) It is the amount of money you receive during a given time period. 
B) It is measured in current dollars. 
C) It is not an accurate measure of purchasing power. 
D) It is the same as your real income in times of high inflation. 
A) It is the amount of money you receive during a given time period. 
B) It is measured in current dollars. 
C) It is not an accurate measure of purchasing power. 
D) It is the same as your real income in times of high inflation.

Question 4

Which of the following results from unexpected increases in the rate of inflation?

Accepted Answer

A) Decreased uncertainty. 
B) Increased windfall profits to creditors who have lent large amounts of money. 
C) Redistributions of income and wealth between different groups. 
D) Creditors are made better off. 
A) Decreased uncertainty. 
B) Increased windfall profits to creditors who have lent large amounts of money. 
C) Redistributions of income and wealth between different groups. 
D) Creditors are made better off.

Question 5

Inflation is an increase in the average level of prices of goods and services.

Accepted Answer

A) True 
 B)False

Question 6

At the beginning of 2000,the CPI was 159.3.At the beginning of 2001,it was 177.6.What was the approximate rate of inflation in 2000?

Accepted Answer

A) 7.6 percent. 
B) 18.3 percent. 
C) 10.0 percent. 
D) 11.5 percent. 
A) 7.6 percent. 
B) 18.3 percent. 
C) 10.0 percent. 
D) 11.5 percent.

Question 7

If the cost of your gasoline purchases decrease from $150 per month to $80 over a period of one year due to lower prices and your income decreases from $1,600 per month to $1,500 per month,your nominal income has

Accepted Answer

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

Question 8

Cost-push inflation can occur as the result of higher wage rates.

Accepted Answer

A) True 
 B)False

Question 9

All of the following are true of the real interest rate except it

Accepted Answer

A) Is equal to the nominal interest rate minus the anticipated rate of inflation. 
B) Is stabilized by ARMs. 
C) Is the inflation-adjusted rate of interest. 
D) Equals the foreign exchange rate minus the inflation rate. 
A) Is equal to the nominal interest rate minus the anticipated rate of inflation. 
B) Is stabilized by ARMs. 
C) Is the inflation-adjusted rate of interest. 
D) Equals the foreign exchange rate minus the inflation rate.

Question 10

Discuss two mechanisms that offer protection from the effects of inflation.

Accepted Answer

Cost-of-living adjustments (COLAs)are au

Question 11

Money illusion is the

Accepted Answer

A) Use of nominal dollars rather than real dollars to gauge changes in one's income or wealth. 
B) Movement of taxpayers into higher tax brackets as nominal income increases. 
C) Focus on real dollars rather than nominal dollars to determine purchasing power over time. 
D) Uncertainty that occurs because of inflation. 
A) Use of nominal dollars rather than real dollars to gauge changes in one's income or wealth. 
B) Movement of taxpayers into higher tax brackets as nominal income increases. 
C) Focus on real dollars rather than nominal dollars to determine purchasing power over time. 
D) Uncertainty that occurs because of inflation.

Question 12

Which of the following is a microeconomic consequence of inflation?

Accepted Answer

A) Greater unemployment. 
B) Greater real income. 
C) Wealth effects. 
D) None of the other choices. 
A) Greater unemployment. 
B) Greater real income. 
C) Wealth effects. 
D) None of the other choices.

Question 13

When production costs increase and producers raise output prices,the result is

Accepted Answer

A) The price effect. 
B) Unemployment. 
C) Cost-push inflation. 
D) Demand-pull inflation. 
A) The price effect. 
B) Unemployment. 
C) Cost-push inflation. 
D) Demand-pull inflation.

Question 14

The Consumer Price Index is

Accepted Answer

A) A measure of changes in the average price of all goods and services. 
B) A measure of changes in the average price of consumer goods and services. 
C) Used to measure the impact of business speculation on consumers. 
D) The impact felt by consumers who move into a higher tax bracket because of inflation. 
A) A measure of changes in the average price of all goods and services. 
B) A measure of changes in the average price of consumer goods and services. 
C) Used to measure the impact of business speculation on consumers. 
D) The impact felt by consumers who move into a higher tax bracket because of inflation.

Question 15

During a period of deflation,

Accepted Answer

A) The price level rises. 
B) People on fixed incomes are better off. 
C) People who hold cash are worse off. 
D) Lenders are worse off. 
A) The price level rises. 
B) People on fixed incomes are better off. 
C) People who hold cash are worse off. 
D) Lenders are worse off.

Question 16

When the price of a good decreases more slowly than an index of average prices decreases,the good's relative price

Accepted Answer

A) Has risen while its actual price has fallen. 
B) And its actual price has risen. 
C) And its actual price has fallen. 
D) Has fallen while its actual price has risen. 
A) Has risen while its actual price has fallen. 
B) And its actual price has risen. 
C) And its actual price has fallen. 
D) Has fallen while its actual price has risen.

Question 17

When restaurant prices rise faster than prices of food at grocery stores,real income rises for people who visit restaurants relative to those who cook for themselves.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) $4,832.0 billion. 
B) $6,811.7 billion. 
C) $6,584.2 billion. 
D) $6,984.1 billion. 
A) $4,832.0 billion. 
B) $6,811.7 billion. 
C) $6,584.2 billion. 
D) $6,984.1 billion.

Question 19

If the nominal interest rate is 13 percent and the anticipated rate of inflation is 8 percent,the real interest rate is

Accepted Answer

A) 13 percent. 
B) 21 percent. 
C) 5 percent. 
D) -5 percent. 
A) 13 percent. 
B) 21 percent. 
C) 5 percent. 
D) -5 percent.

Question 20

For the CPI,the market basket is expressed in terms of what the goods cost in

Accepted Answer

A) 1929. 
B) 2000. 
C) The base period. 
D) The optimal period. 
A) 1929. 
B) 2000. 
C) The base period. 
D) The optimal period.

Exam 7: Inflation

Speculation during periods of inflation can result in all of the following except

If the CPI doesn't measure product quality improvements,the CPI tends to

Which of the following is not true about your nominal income?

Which of the following results from unexpected increases in the rate of inflation?

Inflation is an increase in the average level of prices of goods and services.

At the beginning of 2000,the CPI was 159.3.At the beginning of 2001,it was 177.6.What was the approximate rate of inflation in 2000?

If the cost of your gasoline purchases decrease from $150 per month to $80 over a period of one year due to lower prices and your income decreases from $1,600 per month to $1,500 per month,your nominal income has

Cost-push inflation can occur as the result of higher wage rates.

All of the following are true of the real interest rate except it

Discuss two mechanisms that offer protection from the effects of inflation.

Money illusion is the

Which of the following is a microeconomic consequence of inflation?

When production costs increase and producers raise output prices,the result is

The Consumer Price Index is

During a period of deflation,

When the price of a good decreases more slowly than an index of average prices decreases,the good's relative price

When restaurant prices rise faster than prices of food at grocery stores,real income rises for people who visit restaurants relative to those who cook for themselves.

Table 7.1 GDP Nominal GDP(in billions of dollars) GDP deflator CPI 2002 \ 6,992.4 106.2 151.6 2003 7,431.6 109.1 153.6 2004 7,843.2 112.3 157.8 Based on Table 7.1,the real GDP for 2003 was

If the nominal interest rate is 13 percent and the anticipated rate of inflation is 8 percent,the real interest rate is

For the CPI,the market basket is expressed in terms of what the goods cost in

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

Financial Markets

Taxes: Equity Versus Efficiency

Transfer Payments: Welfare and Social Security

International Trade

International Finance

Global Poverty

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