Question 1

Which of the following statements is true ?

Accepted Answer

A) Demand-pull inflation is caused by excess total spending. 
B) Cost-push inflation is caused by an increase in resource costs. 
C) If nominal interest rates remain the same and the inflation rate falls, real interest rates increase. 
D) If real interest rates are negative, lenders incur losses. 
E) All of these. 
A) Demand-pull inflation is caused by excess total spending. 
B) Cost-push inflation is caused by an increase in resource costs. 
C) If nominal interest rates remain the same and the inflation rate falls, real interest rates increase. 
D) If real interest rates are negative, lenders incur losses. 
E) All of these.

Question 2

According to the Bureau of Labor Statistics' survey, which category represents the largest expense for the typical urban family?

Accepted Answer

A) Housing. 
B) Food and beverages. 
C) Transportation. 
D) Medical care. 
A) Housing. 
B) Food and beverages. 
C) Transportation. 
D) Medical care.

Question 3

The consumer price index (CPI)is computed as the ratio of nominal GDP to real GDP.

Accepted Answer

A) True 
 B)False

Question 4

During the period 1980-1986, the U.S. economy experienced disinflation.

Accepted Answer

A) True 
 B)False

Question 5

Inflation refers only to rising prices at a given time period.

Accepted Answer

A) True 
 B)False

Question 6

Changes in the quality of some goods and services, such as electromechanical calculators, are thought to give a downward bias to the consumer price index.

Accepted Answer

A) True 
 B)False

Question 7

A consumer price index of 110 for a given year indicates that prices in that year are 10 percent higher than prices in the base year.

Accepted Answer

A) True 
 B)False

Question 8

Hyperinflation refers to a situation in which:

Accepted Answer

A) prices are rising extremely rapidly. 
B) prices are falling extremely rapidly. 
C) the price level is extremely high. 
D) the price level is extremely low. 
A) prices are rising extremely rapidly. 
B) prices are falling extremely rapidly. 
C) the price level is extremely high. 
D) the price level is extremely low.

Question 9

Inflation:

Accepted Answer

A) reduces the cost-of-living of the typical worker. 
B) is measured by changes in the cost of a typical market basket of goods between time periods. 
C) causes the purchasing power of a dollar to rise. 
D) has no effect on real income. 
A) reduces the cost-of-living of the typical worker. 
B) is measured by changes in the cost of a typical market basket of goods between time periods. 
C) causes the purchasing power of a dollar to rise. 
D) has no effect on real income.

Question 10

Real income is the purchasing power of nominal (money)income.

Accepted Answer

A) True 
 B)False

Question 11

Demand-pull inflationary pressure increases as the economy approaches full employment.

Accepted Answer

A) True 
 B)False

Question 12

If the inflation rate exceeds the nominal rate of interest,

Accepted Answer

A) the real interest rate is negative. 
B) lenders lose. 
C) savers lose. 
D) all of these. 
A) the real interest rate is negative. 
B) lenders lose. 
C) savers lose. 
D) all of these.

Question 13

People with fixed incomes fare best in an inflationary period.

Accepted Answer

A) True 
 B)False

Question 14

The real interest rate can be negative.

Accepted Answer

A) True 
 B)False

Question 15

Suppose the consumer price index (CPI)stands at 250 this year. If the inflation rate is 10 percent, then next year's CPI will equal:

Accepted Answer

A) 250. 
B) 260. 
C) 275. 
D) 500. 
A) 250. 
B) 260. 
C) 275. 
D) 500.

Question 16

Tina Eckstrom and her husband bought a deferred annuity that started paying them $700 a month in retirement benefits. They, along with millions of other people who live on fixed incomes, are examples of:

Accepted Answer

A) those who are responsible for inflation. 
B) the big winners from inflation. 
C) the big losers from inflation. 
D) the paradox of thrift. 
E) stock market losers. 
A) those who are responsible for inflation. 
B) the big winners from inflation. 
C) the big losers from inflation. 
D) the paradox of thrift. 
E) stock market losers.

Question 17

Deflation refers to a:

Accepted Answer

A) decreasing relative prices. 
B) decreasing price level. 
C) slowing down of the rate of inflation. 
D) federal government policy of running budget surpluses. 
A) decreasing relative prices. 
B) decreasing price level. 
C) slowing down of the rate of inflation. 
D) federal government policy of running budget surpluses.

Question 18

Suppose you place $10,000 in a retirement fund that earns a nominal interest rate of 8 percent. If you expect inflation to be 5 percent or lower, then you are expecting to earn a real interest rate of at least:

Accepted Answer

A) 1.6 percent. 
B) 3 percent. 
C) 4 percent. 
D) 5 percent. 
A) 1.6 percent. 
B) 3 percent. 
C) 4 percent. 
D) 5 percent.

Question 19

Suppose you received a 5 percent increase in your nominal wage. Over the year, inflation ran about 2 percent. Which of the following is true ?

Accepted Answer

A) Your real wage increased. 
B) Your nominal wage decreased. 
C) Both your nominal and real wages decreased. 
D) Although your nominal wage rose, your real wage decreased. 
A) Your real wage increased. 
B) Your nominal wage decreased. 
C) Both your nominal and real wages decreased. 
D) Although your nominal wage rose, your real wage decreased.

Question 20

Exhibit 7-2 Consumer Price Index   As shown in Exhibit 7-2, the rate of inflation for Year 3 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.

Exam 7: Inflation

Which of the following statements is true ?

According to the Bureau of Labor Statistics' survey, which category represents the largest expense for the typical urban family?

The consumer price index (CPI)is computed as the ratio of nominal GDP to real GDP.

During the period 1980-1986, the U.S. economy experienced disinflation.

Inflation refers only to rising prices at a given time period.

Changes in the quality of some goods and services, such as electromechanical calculators, are thought to give a downward bias to the consumer price index.

A consumer price index of 110 for a given year indicates that prices in that year are 10 percent higher than prices in the base year.

Hyperinflation refers to a situation in which:

Inflation:

Real income is the purchasing power of nominal (money)income.

Demand-pull inflationary pressure increases as the economy approaches full employment.

If the inflation rate exceeds the nominal rate of interest,

People with fixed incomes fare best in an inflationary period.

The real interest rate can be negative.

Suppose the consumer price index (CPI)stands at 250 this year. If the inflation rate is 10 percent, then next year's CPI will equal:

Tina Eckstrom and her husband bought a deferred annuity that started paying them $700 a month in retirement benefits. They, along with millions of other people who live on fixed incomes, are examples of:

Deflation refers to a:

Suppose you place $10,000 in a retirement fund that earns a nominal interest rate of 8 percent. If you expect inflation to be 5 percent or lower, then you are expecting to earn a real interest rate of at least:

Suppose you received a 5 percent increase in your nominal wage. Over the year, inflation ran about 2 percent. Which of the following is true ?

Exhibit 7-2 Consumer Price Index As shown in Exhibit 7-2, the rate of inflation for Year 3 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

Filters