Question 1

Suppose that the nominal interest rate is 7 percent and the expected inflation rate is 3 percent. What happens with the value of savings?

Accepted Answer

A)  The dollar value of savings increases by 11 percent, and the value of savings measured in goods is expected to increase by 3 percent. 
B)  The dollar value of savings increases by 11 percent, and the value of savings measured in goods is expected to increase by 4 percent. 
C)  The dollar value of savings increases by 7 percent, and the value of savings measured in goods is expected to increase by 4 percent. 
D)  The dollar value of savings increases by 7 percent, and the value of savings measured in goods is expected to increase by 3 percent. 
A)  The dollar value of savings increases by 11 percent, and the value of savings measured in goods is expected to increase by 3 percent. 
B)  The dollar value of savings increases by 11 percent, and the value of savings measured in goods is expected to increase by 4 percent. 
C)  The dollar value of savings increases by 7 percent, and the value of savings measured in goods is expected to increase by 4 percent. 
D)  The dollar value of savings increases by 7 percent, and the value of savings measured in goods is expected to increase by 3 percent.

Question 2

There is no longer much debate among economists concerning the severity of and the solution to the problems in using the CPI to measure the cost of living.

Accepted Answer

A) True 
 B)False

Question 3

Which statement best describes the relationship between inflation and interest rates?

Accepted Answer

A)  There is no relationship between inflation and interest rates. 
B)  The interest rate is determined by the rate of inflation. 
C)  In order to fully understand inflation, we need to know how to correct for the effects of interest rates. 
D)  In order to fully understand interest rates, we need to know how to correct for the effects of inflation. 
A)  There is no relationship between inflation and interest rates. 
B)  The interest rate is determined by the rate of inflation. 
C)  In order to fully understand inflation, we need to know how to correct for the effects of interest rates. 
D)  In order to fully understand interest rates, we need to know how to correct for the effects of inflation.

Question 4

When does a cost-of-living allowance (COLA) automatically raise the wage rate?

Accepted Answer

A)  when GDP increases 
B)  when the consumer price index increases 
C)  when taxes increase 
D)  when the consumer price index is announced 
A)  when GDP increases 
B)  when the consumer price index increases 
C)  when taxes increase 
D)  when the consumer price index is announced

Question 5

If the price index in the first year was 80, in the second year was 100, and in the third year was 90, what did the economy experience?

Accepted Answer

A)  20 percent inflation between the first and second years and 10 percent inflation between the second and third years 
B)  20 percent inflation between the first and second years and 10 percent deflation between the second and third years 
C)  25 percent inflation between the first and second years and 10 percent inflation between the second and third years 
D)  25 percent inflation between the first and second years and 10 percent deflation between the second and third years 
A)  20 percent inflation between the first and second years and 10 percent inflation between the second and third years 
B)  20 percent inflation between the first and second years and 10 percent deflation between the second and third years 
C)  25 percent inflation between the first and second years and 10 percent inflation between the second and third years 
D)  25 percent inflation between the first and second years and 10 percent deflation between the second and third years

Question 6

The price index in 2018 is 130, and in 2019 it is 143. What is the inflation rate?

Accepted Answer

A)  1.01 percent 
B)  10 percent 
C)  13 percent 
D)  43 percent 
A)  1.01 percent 
B)  10 percent 
C)  13 percent 
D)  43 percent

Question 7

Aditi deposits $1000 into a savings account that pays an annual interest rate of 5 percent. Over the course of a year, the inflation rate is 2 percent. What happens at the end of the year?

Accepted Answer

A)  Aditi has $50 more in her account, and her purchasing power has increased by about $20. 
B)  Aditi has $50 more in her account, and her purchasing power has increased by about $30. 
C)  Aditi has $70 more in her account, and her purchasing power has increased about $50. 
D)  Aditi has $70 more in her account, and her purchasing power has increased about $20. 
A)  Aditi has $50 more in her account, and her purchasing power has increased by about $20. 
B)  Aditi has $50 more in her account, and her purchasing power has increased by about $30. 
C)  Aditi has $70 more in her account, and her purchasing power has increased about $50. 
D)  Aditi has $70 more in her account, and her purchasing power has increased about $20.

Question 8

Which statement best defines "indexation"?

Accepted Answer

A)  It is a process of adjusting the nominal interest rate so that it is equal to the real interest rate. 
B)  It is the use of a law or contract to automatically correct a dollar amount for the effects of inflation. 
C)  It is the use of a price index to deflate dollar values. 
D)  It is an adjustment made by Statistics Canada to the CPI so that the index is in line with the GDP deflator. 
A)  It is a process of adjusting the nominal interest rate so that it is equal to the real interest rate. 
B)  It is the use of a law or contract to automatically correct a dollar amount for the effects of inflation. 
C)  It is the use of a price index to deflate dollar values. 
D)  It is an adjustment made by Statistics Canada to the CPI so that the index is in line with the GDP deflator.

Question 9

If there is a reduction in the price of large road paving machines imported into Canada from Sweden, what will happen to the GDP deflator and the consumer price index?

Accepted Answer

A)  The GDP deflator and the consumer price index will decrease. 
B)  The GDP deflator will not change; the consumer price index will decrease. 
C)  The GDP deflator will decrease; the consumer price index will not change. 
D)  Neither the GDP deflator nor the consumer price index will change. 
A)  The GDP deflator and the consumer price index will decrease. 
B)  The GDP deflator will not change; the consumer price index will decrease. 
C)  The GDP deflator will decrease; the consumer price index will not change. 
D)  Neither the GDP deflator nor the consumer price index will change.

Question 10

If the cost of shelter increases by 10 percent, then, other things the same, how much is the CPI likely to increase?

Accepted Answer

A)  by about 1 percent 
B)  by about 3 percent 
C)  by about 7 percent 
D)  by about 10 percent 
A)  by about 1 percent 
B)  by about 3 percent 
C)  by about 7 percent 
D)  by about 10 percent

Question 11

Welfare payments are indexed for inflation using the CPI. A recent newspaper editorial claimed that welfare recipients are harmed by inflation as it is measured by the CPI. Is the newspaper editorial correct?

Accepted Answer

A)  The newspaper editorial is correct if the price of the basket consumed by welfare recipients increases faster than the price of the CPI basket. 
B)  The newspaper editorial is correct if the price of the basket consumed by welfare recipients increases slower than the price of the CPI basket. 
C)  The newspaper editorial is correct if the prices of the goods consumed by welfare recipients are cheaper than the goods in the CPI basket. 
D)  The newspaper editorial is correct if the prices of the goods consumed by welfare recipients are more expensive than the goods in the CPI basket. 
A)  The newspaper editorial is correct if the price of the basket consumed by welfare recipients increases faster than the price of the CPI basket. 
B)  The newspaper editorial is correct if the price of the basket consumed by welfare recipients increases slower than the price of the CPI basket. 
C)  The newspaper editorial is correct if the prices of the goods consumed by welfare recipients are cheaper than the goods in the CPI basket. 
D)  The newspaper editorial is correct if the prices of the goods consumed by welfare recipients are more expensive than the goods in the CPI basket.

Question 12

Which of the following best describes real interest rates in the 1990s and the 2010s?

Accepted Answer

A)  high in the 1990s and 2010s 
B)  low in the 1990s and 2010s 
C)  low in the 1990s and high in the 2010s 
D)  high in the 1990s and low in the 2010s 
A)  high in the 1990s and 2010s 
B)  low in the 1990s and 2010s 
C)  low in the 1990s and high in the 2010s 
D)  high in the 1990s and low in the 2010s

Question 13

Which problem in the construction of the CPI is the invention of wi-fi most relevant to?

Accepted Answer

A)  substitution bias 
B)  introduction of new goods 
C)  unmeasured quality change 
D)  income bias 
A)  substitution bias 
B)  introduction of new goods 
C)  unmeasured quality change 
D)  income bias

Question 14

Research done at the Bank of Canada suggests that the sources of bias in CPI, taken together, cause the Canadian CPI to overstate increases in the cost of living. How much does the research indicate it is overstated by?

Accepted Answer

A)  0.5 percentage points 
B)  1.6 percentage points 
C)  2.1 percentage points 
D)  3.4 percentage points 
A)  0.5 percentage points 
B)  1.6 percentage points 
C)  2.1 percentage points 
D)  3.4 percentage points

Question 15

-Refer to Table 6-5. Using 2018 as the base year, what is the consumer price index in 2017?

Accepted Answer

A)  74.07 
B)  77.78 
C)  78.22 
D)  135.00 
A)  74.07 
B)  77.78 
C)  78.22 
D)  135.00

Question 16

Which agency calculates the CPI?

Accepted Answer

A)  the Canadian Bureau of Labour Statistics 
B)  the Department of Consumer Affairs 
C)  Statistics Canada 
D)  the Bank of Canada 
A)  the Canadian Bureau of Labour Statistics 
B)  the Department of Consumer Affairs 
C)  Statistics Canada 
D)  the Bank of Canada

Question 17

-Refer to Table 6-1. Suppose that the typical consumer basket consists of 5 bushels of peaches and 10 bushels of apples and that the base year is 2018. What is the consumer price index for 2018?

Accepted Answer

A)  80 
B)  100 
C)  120 
D)  125 
A)  80 
B)  100 
C)  120 
D)  125

Question 18

In the country of Hyrkania, the CPI in 2018 was 140 and the CPI in 2019 was 154. Jake, a resident of Hyrkania, borrowed money in 2018 and repaid the loan in 2019. If the nominal interest rate on the loan was 12 percent, what was the real interest rate?

Accepted Answer

A)  2 percent 
B)  8 percent 
C)  12 percent 
D)  16 percent 
A)  2 percent 
B)  8 percent 
C)  12 percent 
D)  16 percent

Question 19

What does the real interest rate tell you?

Accepted Answer

A)  how fast the number of dollars in your bank account rises over time 
B)  how fast the purchasing power of your bank account rises over time 
C)  the number of dollars in your bank account 
D)  the purchasing power of your bank account 
A)  how fast the number of dollars in your bank account rises over time 
B)  how fast the purchasing power of your bank account rises over time 
C)  the number of dollars in your bank account 
D)  the purchasing power of your bank account

Question 20

If you currently make $25,000 a year and the CPI rises from 110 today to 150 in five years, then you need to be making $35,000 to have kept pace with consumer price inflation.

Accepted Answer

A) True 
 B)False

Suppose that the nominal interest rate is 7 percent and the expected inflation rate is 3 percent. What happens with the value of savings?

There is no longer much debate among economists concerning the severity of and the solution to the problems in using the CPI to measure the cost of living.

Which statement best describes the relationship between inflation and interest rates?

When does a cost-of-living allowance (COLA) automatically raise the wage rate?

If the price index in the first year was 80, in the second year was 100, and in the third year was 90, what did the economy experience?

The price index in 2018 is 130, and in 2019 it is 143. What is the inflation rate?

Aditi deposits $1000 into a savings account that pays an annual interest rate of 5 percent. Over the course of a year, the inflation rate is 2 percent. What happens at the end of the year?

Which statement best defines "indexation"?

If there is a reduction in the price of large road paving machines imported into Canada from Sweden, what will happen to the GDP deflator and the consumer price index?

If the cost of shelter increases by 10 percent, then, other things the same, how much is the CPI likely to increase?

Welfare payments are indexed for inflation using the CPI. A recent newspaper editorial claimed that welfare recipients are harmed by inflation as it is measured by the CPI. Is the newspaper editorial correct?

Which of the following best describes real interest rates in the 1990s and the 2010s?

Which problem in the construction of the CPI is the invention of wi-fi most relevant to?

Research done at the Bank of Canada suggests that the sources of bias in CPI, taken together, cause the Canadian CPI to overstate increases in the cost of living. How much does the research indicate it is overstated by?

-Refer to Table 6-5. Using 2018 as the base year, what is the consumer price index in 2017?

Which agency calculates the CPI?

-Refer to Table 6-1. Suppose that the typical consumer basket consists of 5 bushels of peaches and 10 bushels of apples and that the base year is 2018. What is the consumer price index for 2018?

In the country of Hyrkania, the CPI in 2018 was 140 and the CPI in 2019 was 154. Jake, a resident of Hyrkania, borrowed money in 2018 and repaid the loan in 2019. If the nominal interest rate on the loan was 12 percent, what was the real interest rate?

What does the real interest rate tell you?

If you currently make $25,000 a year and the CPI rises from 110 today to 150 in five years, then you need to be making $35,000 to have kept pace with consumer price inflation.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 6: Measuring the Cost of Living

Suppose that the nominal interest rate is 7 percent and the expected inflation rate is 3 percent. What happens with the value of savings?

There is no longer much debate among economists concerning the severity of and the solution to the problems in using the CPI to measure the cost of living.

Which statement best describes the relationship between inflation and interest rates?

When does a cost-of-living allowance (COLA) automatically raise the wage rate?

If the price index in the first year was 80, in the second year was 100, and in the third year was 90, what did the economy experience?

The price index in 2018 is 130, and in 2019 it is 143. What is the inflation rate?

Aditi deposits $1000 into a savings account that pays an annual interest rate of 5 percent. Over the course of a year, the inflation rate is 2 percent. What happens at the end of the year?

Which statement best defines "indexation"?

If there is a reduction in the price of large road paving machines imported into Canada from Sweden, what will happen to the GDP deflator and the consumer price index?

If the cost of shelter increases by 10 percent, then, other things the same, how much is the CPI likely to increase?

Welfare payments are indexed for inflation using the CPI. A recent newspaper editorial claimed that welfare recipients are harmed by inflation as it is measured by the CPI. Is the newspaper editorial correct?

Which of the following best describes real interest rates in the 1990s and the 2010s?

Which problem in the construction of the CPI is the invention of wi-fi most relevant to?

Research done at the Bank of Canada suggests that the sources of bias in CPI, taken together, cause the Canadian CPI to overstate increases in the cost of living. How much does the research indicate it is overstated by?

-Refer to Table 6-5. Using 2018 as the base year, what is the consumer price index in 2017?

Which agency calculates the CPI?

-Refer to Table 6-1. Suppose that the typical consumer basket consists of 5 bushels of peaches and 10 bushels of apples and that the base year is 2018. What is the consumer price index for 2018?

In the country of Hyrkania, the CPI in 2018 was 140 and the CPI in 2019 was 154. Jake, a resident of Hyrkania, borrowed money in 2018 and repaid the loan in 2019. If the nominal interest rate on the loan was 12 percent, what was the real interest rate?

What does the real interest rate tell you?

If you currently make $25,000 a year and the CPI rises from 110 today to 150 in five years, then you need to be making $35,000 to have kept pace with consumer price inflation.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters