Question 1

Changes in the relative prices of two goods indicate

Accepted Answer

A) Inflation. 
B) Nominal price changes adjusted for the inflation in the price of the goods. 
C) That average prices for the period must not be stable. 
D) Changes in the desired mix of output. 
A) Inflation. 
B) Nominal price changes adjusted for the inflation in the price of the goods. 
C) That average prices for the period must not be stable. 
D) Changes in the desired mix of output.

Question 2

All of the following push a country inside its production possibilities curve except

Accepted Answer

A) A sudden burst of inflation that has not been anticipated. 
B) A sudden burst of deflation that has not been anticipated. 
C) The withholding of resources from the production process because of speculation. 
D) An increase in labor force participation. 
A) A sudden burst of inflation that has not been anticipated. 
B) A sudden burst of deflation that has not been anticipated. 
C) The withholding of resources from the production process because of speculation. 
D) An increase in labor force participation.

Question 3

Which of the following is a likely macroeconomic consequence of inflation?

Accepted Answer

A) Focus on long-term planning. 
B) Speculation. 
C) Antitrust issues. 
D) None of the other choices. 
A) Focus on long-term planning. 
B) Speculation. 
C) Antitrust issues. 
D) None of the other choices.

Question 4

In order to achieve price stability,inflation must be zero.

Accepted Answer

A) True 
 B)False

Question 5

The most visible consequence of inflation is

Accepted Answer

A) A rise in employment. 
B) A rise in production. 
C) A rise in the price level. 
D) A change in government regulation. 
A) A rise in employment. 
B) A rise in production. 
C) A rise in the price level. 
D) A change in government regulation.

Question 6

Which one of the following statements about the United States is true?

Accepted Answer

A) Prior to World War II,the United States experienced periods of both deflation and inflation. 
B) The United States has experienced inflation every year since 1800. 
C) Since World War II,the United States has experienced deflation. 
D) Prior to World War II,the United States experienced deflation virtually every year;since World War II,the United States has consistently experienced inflation. 
A) Prior to World War II,the United States experienced periods of both deflation and inflation. 
B) The United States has experienced inflation every year since 1800. 
C) Since World War II,the United States has experienced deflation. 
D) Prior to World War II,the United States experienced deflation virtually every year;since World War II,the United States has consistently experienced inflation.

Question 7

If a bank has already lent money at fixed interest rates,then during a period of higher-than-expected inflation,it experiences

Accepted Answer

A) Negative real income effects. 
B) Hyperinflation. 
C) Rising real interest rates. 
D) Deflation. 
A) Negative real income effects. 
B) Hyperinflation. 
C) Rising real interest rates. 
D) Deflation.

Question 8

If the price of Bluetooth headsets rises 12 percent during a year when the level of average prices rises 13 percent,the relative price of Bluetooth headsets

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 9

Inflation is

Accepted Answer

A) A rise in the price of every good but not any service. 
B) An increase in relative prices of all goods and services. 
C) A situation in which purchasing power increases. 
D) An increase in the average level of prices of goods and services. 
A) A rise in the price of every good but not any service. 
B) An increase in relative prices of all goods and services. 
C) A situation in which purchasing power increases. 
D) An increase in the average level of prices of goods and services.

Question 10

During the time period represented in Figure 7.3,the purchasing power of the average worker

Accepted Answer

A) Increased because nominal wages increased. 
B) Decreased because real income decreased. 
C) Stay the same because COLAs reduced purchasing power. 
D) Decreased because nominal income decreased. 
A) Increased because nominal wages increased. 
B) Decreased because real income decreased. 
C) Stay the same because COLAs reduced purchasing power. 
D) Decreased because nominal income decreased.

Question 11

According to Figure 7.3,prices and wages were rising,so

Accepted Answer

A) Sellers of output were better off than wage earners. 
B) Everyone must have been worse off since the price level rose faster than incomes. 
C) There were no redistributive effects of inflation. 
D) The economy was experiencing stagflation. 
A) Sellers of output were better off than wage earners. 
B) Everyone must have been worse off since the price level rose faster than incomes. 
C) There were no redistributive effects of inflation. 
D) The economy was experiencing stagflation.

Question 12

Table 7.2 GDP for Newland
$$\begin{array} { | l | r | c | r | } 
\hline & \begin{array} { c } 
\text { Nominal GDP(in billions of } \
\text { dollars) }
\end{array} & \text { GDP deflator } &  { \text { CPI } } \
\hline 2001 & \$ 5,900 & 120.1 & 128.3 \
\hline 2002 & 6,300 & 123.0 & 131.7 \
\hline 2003 & 6,804 & 126.3 & 136.5 \
\hline
\end{array}$$ Based on Table 7.2,the rate of inflation between 2002 and 2003,using the GDP deflator,was

Accepted Answer

A) 1.62 percent. 
B) 2.68 percent. 
C) 4.91 percent. 
D) None of the other choices. 
A) 1.62 percent. 
B) 2.68 percent. 
C) 4.91 percent. 
D) None of the other choices.

Question 13

Changes in relative prices may occur

Accepted Answer

A) Only in periods of stable prices. 
B) Only in periods of inflation or deflation. 
C) In periods of stable prices or in periods of inflation or deflation. 
D) In none of the other choices. 
A) Only in periods of stable prices. 
B) Only in periods of inflation or deflation. 
C) In periods of stable prices or in periods of inflation or deflation. 
D) In none of the other choices.

Question 14

Why did the Full Employment and Balanced Growth Act establish 3 percent inflation as the benchmark rather than zero inflation?

Accepted Answer

The goal was set at 3 percent because of

Question 15

During a period of deflation,

Accepted Answer

A) Time horizons are longer. 
B) Consumer confidence increases. 
C) Lenders are better off. 
D) Borrowers are better off. 
A) Time horizons are longer. 
B) Consumer confidence increases. 
C) Lenders are better off. 
D) Borrowers are better off.

Question 16

Consider the economy represented in Figure 7.4.If actual inflation was greater than anticipated inflation,

Accepted Answer

A) Borrowers would experience a decrease in real income. 
B) Lenders would experience a decrease in real income. 
C) Lenders would experience an increase in real income. 
D) The Federal Reserve would be forced to step in to increase lending. 
A) Borrowers would experience a decrease in real income. 
B) Lenders would experience a decrease in real income. 
C) Lenders would experience an increase in real income. 
D) The Federal Reserve would be forced to step in to increase lending.

Question 17

If the nominal interest rate is 10 percent and the real interest rate is 6 percent,

Accepted Answer

A) The expected rate of inflation is 4 percent. 
B) The expected rate of inflation is 6 percent. 
C) Real GDP must exceed nominal GDP. 
D) Nominal GDP equals real GDP. 
A) The expected rate of inflation is 4 percent. 
B) The expected rate of inflation is 6 percent. 
C) Real GDP must exceed nominal GDP. 
D) Nominal GDP equals real GDP.

Question 18

All of the following are macroeconomic effects of inflation except

Accepted Answer

A) Uncertainty. 
B) Speculation. 
C) Bracket creep. 
D) Lower taxes. 
A) Uncertainty. 
B) Speculation. 
C) Bracket creep. 
D) Lower taxes.

Question 19

The redistributive mechanics of inflation include all of the following except

Accepted Answer

A) Price effects. 
B) Income effects. 
C) Wealth effects. 
D) Output effects. 
A) Price effects. 
B) Income effects. 
C) Wealth effects. 
D) Output effects.

Question 20

At the beginning of 1989,the GDP deflator was 93.6.At the end of 2004,it was 189.2.What was the total percentage change in prices over this 15-year period?

Accepted Answer

A) 98.9 percent. 
B) 102.14 percent. 
C) 59.6 percent. 
D) 150.0 percent. 
A) 98.9 percent. 
B) 102.14 percent. 
C) 59.6 percent. 
D) 150.0 percent.

Exam 7: Inflation

Changes in the relative prices of two goods indicate

All of the following push a country inside its production possibilities curve except

Which of the following is a likely macroeconomic consequence of inflation?

In order to achieve price stability,inflation must be zero.

The most visible consequence of inflation is

Which one of the following statements about the United States is true?

If a bank has already lent money at fixed interest rates,then during a period of higher-than-expected inflation,it experiences

If the price of Bluetooth headsets rises 12 percent during a year when the level of average prices rises 13 percent,the relative price of Bluetooth headsets

Inflation is

During the time period represented in Figure 7.3,the purchasing power of the average worker

According to Figure 7.3,prices and wages were rising,so

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 6,804 126.3 136.5 Based on Table 7.2,the rate of inflation between 2002 and 2003,using the GDP deflator,was

Changes in relative prices may occur

Why did the Full Employment and Balanced Growth Act establish 3 percent inflation as the benchmark rather than zero inflation?

During a period of deflation,

Consider the economy represented in Figure 7.4.If actual inflation was greater than anticipated inflation,

If the nominal interest rate is 10 percent and the real interest rate is 6 percent,

All of the following are macroeconomic effects of inflation except

The redistributive mechanics of inflation include all of the following except

At the beginning of 1989,the GDP deflator was 93.6.At the end of 2004,it was 189.2.What was the total percentage change in prices over this 15-year period?

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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