Question 1

Suppose hypothetically that the consumer price index (CPI)was 150 in Year 1 and was 180 in Year 2. What would be the inflation rate for this period?

Accepted Answer

A) 12 percent. 
B) 16.7 percent. 
C) 20 percent. 
D) 30 percent. 
A) 12 percent. 
B) 16.7 percent. 
C) 20 percent. 
D) 30 percent.

Question 2

The nominal rate of interest is equal to the real interest rate plus the inflation rate.

Accepted Answer

A) True 
 B)False

Question 3

Suppose your nominal income this year is 5 percent higher than last year. If the inflation rate for the period was 3 percent, then your real income was:

Accepted Answer

A) increased by 1.67 percent. 
B) increased by 2 percent. 
C) increased by 8 percent. 
D) decreased by 0.6 percent. 
A) increased by 1.67 percent. 
B) increased by 2 percent. 
C) increased by 8 percent. 
D) decreased by 0.6 percent.

Question 4

A worker would be hurt least by inflation when the:

Accepted Answer

A) worker anticipates inflation and increases savings at the bank. 
B) worker is protected by a cost-of-living adjustment clause in an employment contract. 
C) price level increases but at a decreasing rate. 
D) worker is protected by fixed annual increases in wages and benefits in an employment contract. 
A) worker anticipates inflation and increases savings at the bank. 
B) worker is protected by a cost-of-living adjustment clause in an employment contract. 
C) price level increases but at a decreasing rate. 
D) worker is protected by fixed annual increases in wages and benefits in an employment contract.

Question 5

During periods of inflation, all prices of all products are rising.

Accepted Answer

A) True 
 B)False

Question 6

If the consumer price index (CPI)in Year X was 300 and the CPI in Year Y was 325, the rate of inflation for Year Y was:

Accepted Answer

A) 325 percent. 
B) 25 percent. 
C) 5 percent. 
D) 8 percent. 
A) 325 percent. 
B) 25 percent. 
C) 5 percent. 
D) 8 percent.

Question 7

Exhibit 7-2 Consumer Price Index   As shown in Exhibit 7-2, the rate of inflation for Year 2 is:

Accepted Answer

A) 5 percent. 
B) 10 percent. 
C) 20 percent. 
D) 25 percent. 
A) 5 percent. 
B) 10 percent. 
C) 20 percent. 
D) 25 percent.

Question 8

During periods of hyperinflation, which of the following is the most likely response of consumers?

Accepted Answer

A) Save as much as possible. 
B) Spend money as fast as possible. 
C) Invest as much as possible. 
D) Lend money. 
A) Save as much as possible. 
B) Spend money as fast as possible. 
C) Invest as much as possible. 
D) Lend money.

Question 9

Suppose a market basket of goods and services costs $1,000 in the base year and the consumer price index (CPI)is currently 110. This indicates the price of the market basket of goods and services is now:

Accepted Answer

A) $110. 
B) $1,000. 
C) $1,100. 
D) $1,225. 
A) $110. 
B) $1,000. 
C) $1,100. 
D) $1,225.

Question 10

Disinflation means a decrease in:

Accepted Answer

A) the rate of inflation. 
B) the general level of prices in the economy. 
C) the prices of all products in the economy. 
D) the circular flow. 
A) the rate of inflation. 
B) the general level of prices in the economy. 
C) the prices of all products in the economy. 
D) the circular flow.

Question 11

Suppose the price of gasoline rises and consumers cut back on their use of gasoline relative to other consumer goods. This situation would contribute to which bias in the consumer price index?

Accepted Answer

A) Substitution bias. 
B) Transportation bias. 
C) Quality bias. 
D) Indexing bias. 
A) Substitution bias. 
B) Transportation bias. 
C) Quality bias. 
D) Indexing bias.

Question 12

The real interest rate can be expressed as the:

Accepted Answer

A) nominal interest rate minus the real interest rate. 
B) inflation rate minus the nominal interest rate. 
C) nominal interest rate minus the inflation rate. 
D) nominal interest rate plus the inflation rate. 
A) nominal interest rate minus the real interest rate. 
B) inflation rate minus the nominal interest rate. 
C) nominal interest rate minus the inflation rate. 
D) nominal interest rate plus the inflation rate.

Question 13

Which of the following can create demand-pull inflation?

Accepted Answer

A) Excessive aggregate spending. 
B) Sharply rising oil prices. 
C) Higher labor costs. 
D) Recessions and depressions. 
A) Excessive aggregate spending. 
B) Sharply rising oil prices. 
C) Higher labor costs. 
D) Recessions and depressions.

Question 14

Which of the following is true about inflation?

Accepted Answer

A) Inflation promotes social harmony by uniting people against the government. 
B) Inflation is more damaging if it is anticipated. 
C) Accurate anticipation of inflation is possible for everyone who is well informed about economic events. 
D) Those who lend money at a rate below the rate of inflation suffer economic losses. 
E) If people accurately anticipate inflation, their actions will prevent it. 
A) Inflation promotes social harmony by uniting people against the government. 
B) Inflation is more damaging if it is anticipated. 
C) Accurate anticipation of inflation is possible for everyone who is well informed about economic events. 
D) Those who lend money at a rate below the rate of inflation suffer economic losses. 
E) If people accurately anticipate inflation, their actions will prevent it.

Question 15

A reduction in the rate of inflation is called:

Accepted Answer

A) deflation. 
B) disinflation. 
C) hyperinflation. 
D) cost-push inflation. 
A) deflation. 
B) disinflation. 
C) hyperinflation. 
D) cost-push inflation.

Question 16

If consumers reduce the purchase of goods whose relative prices rise (substitution bias), the consumer price index (CPI)will tend to have an upward bias over time (overstates inflation).

Accepted Answer

A) True 
 B)False

Question 17

An increase in the general price level is termed:

Accepted Answer

A) the Consumer Price Index. 
B) inflation. 
C) deflation. 
D) stagflation. 
E) nominal pricing. 
A) the Consumer Price Index. 
B) inflation. 
C) deflation. 
D) stagflation. 
E) nominal pricing.

Question 18

Inflation was a major problem in the United States during the early years of the Great Depression.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements is true ?

Accepted Answer

A) Deflation is an increase in the general level of prices. 
B) The consumer price index (CPI)measures changes in the average prices of consumer goods and services. 
C) Disinflation is an increase in the rate of inflation. 
D) Real income is the actual number of dollars received over a period of time. 
E) The real interest rate equals the nominal rate of interest plus the inflation rate. 
A) Deflation is an increase in the general level of prices. 
B) The consumer price index (CPI)measures changes in the average prices of consumer goods and services. 
C) Disinflation is an increase in the rate of inflation. 
D) Real income is the actual number of dollars received over a period of time. 
E) The real interest rate equals the nominal rate of interest plus the inflation rate.

Question 20

The base year in the consumer price index (CPI)is:

Accepted Answer

A) given a value of zero. 
B) a year chosen as a reference for prices in all other years. 
C) always the first year in the current decade. 
D) established by law. 
A) given a value of zero. 
B) a year chosen as a reference for prices in all other years. 
C) always the first year in the current decade. 
D) established by law.

Exam 7: Inflation

Suppose hypothetically that the consumer price index (CPI)was 150 in Year 1 and was 180 in Year 2. What would be the inflation rate for this period?

The nominal rate of interest is equal to the real interest rate plus the inflation rate.

Suppose your nominal income this year is 5 percent higher than last year. If the inflation rate for the period was 3 percent, then your real income was:

A worker would be hurt least by inflation when the:

During periods of inflation, all prices of all products are rising.

If the consumer price index (CPI)in Year X was 300 and the CPI in Year Y was 325, the rate of inflation for Year Y was:

Exhibit 7-2 Consumer Price Index As shown in Exhibit 7-2, the rate of inflation for Year 2 is:

During periods of hyperinflation, which of the following is the most likely response of consumers?

Suppose a market basket of goods and services costs $1,000 in the base year and the consumer price index (CPI)is currently 110. This indicates the price of the market basket of goods and services is now:

Disinflation means a decrease in:

Suppose the price of gasoline rises and consumers cut back on their use of gasoline relative to other consumer goods. This situation would contribute to which bias in the consumer price index?

The real interest rate can be expressed as the:

Which of the following can create demand-pull inflation?

Which of the following is true about inflation?

A reduction in the rate of inflation is called:

If consumers reduce the purchase of goods whose relative prices rise (substitution bias), the consumer price index (CPI)will tend to have an upward bias over time (overstates inflation).

An increase in the general price level is termed:

Inflation was a major problem in the United States during the early years of the Great Depression.

Which of the following statements is true ?

The base year in the consumer price index (CPI)is:

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Gross Domestic Product

Business Cycles and Unemployment

The Keynesian Model

The Keynesian Model in Action

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Applying Graphs to Economics

Consumer Surplus, Producer Surplus, and Market Efficiency

the Self-Correcting Aggregate Demand and Supply Model

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

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