Question 1

Who is hurt and who benefits from inflation? Why?

Accepted Answer

Inflation hurts those on fixed incomes a

Question 2

Consider an economy with only two goods: bread and wine. In 1982, the typical family bought 4 loaves of bread at 50¢ per loaf and 2 bottles of wine for $9 per bottle. In Year X, bread cost 75¢ per loaf and wine cost $10 per bottle. The CPI for Year X (using a 1982 base year) is:

Accepted Answer

A)  100. 
B)  115. 
C)  126. 
D)  130. 
A)  100. 
B)  115. 
C)  126. 
D)  130.

Question 3

Assume that the real rate of interest is 5 percent and a lender charges a nominal interest rate of 15 percent. If a borrower expects that the rate of inflation next year will be 10 percent and the actual rate of inflation next year is 10 percent,

Accepted Answer

A)  the lender benefits from inflation, while the borrower loses from inflation. 
B)  the borrower benefits from inflation, while the lender loses from inflation. 
C)  neither the borrower nor the lender benefits from inflation. 
D)  both the borrower and the lender lose from inflation. 
A)  the lender benefits from inflation, while the borrower loses from inflation. 
B)  the borrower benefits from inflation, while the lender loses from inflation. 
C)  neither the borrower nor the lender benefits from inflation. 
D)  both the borrower and the lender lose from inflation.

Question 4

Suppose that your income during Year X was $50,000, and the CPI for Year X was 150 (base year = Z=100). Back in Year Z your income was $30,000. Has your real income increased or decreased from Z to year X? By how much?

Accepted Answer

A)  Increased by $5,000. 
B)  Increased by $3,333. 
C)  Decreased by $5,000. 
D)  Decreased by $3,333. 
A)  Increased by $5,000. 
B)  Increased by $3,333. 
C)  Decreased by $5,000. 
D)  Decreased by $3,333.

Question 5

One way the consumer price index (CPI) differs from the GDP chain price index is that the CPI:

Accepted Answer

A)  uses current year quantities of goods and services. 
B)  includes separate market baskets of goods and services for both base and current years. 
C)  includes only goods and services bought by typical urban consumers. 
D)  is bias free. 
A)  uses current year quantities of goods and services. 
B)  includes separate market baskets of goods and services for both base and current years. 
C)  includes only goods and services bought by typical urban consumers. 
D)  is bias free.

Question 6

How is inflation typically measured? What are the different types of inflation? Why is it important to know which type of inflation we may be experiencing?

Accepted Answer

Inflation is typically measured by the C

Question 7

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 8

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

Question 9

The best definition of inflation is a(n):

Accepted Answer

A)  decrease in the general price level. 
B)  increase in the price of one important commodity such as food. 
C)  persistent increase in the general level of prices as measured by a price index. 
D)  increase in the purchasing power of the dollar. 
A)  decrease in the general price level. 
B)  increase in the price of one important commodity such as food. 
C)  persistent increase in the general level of prices as measured by a price index. 
D)  increase in the purchasing power of the dollar.

Question 10

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. 
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.

Question 11

Demand-pull inflation is due to:

Accepted Answer

A)  minimum wage laws. 
B)  labor cost increases. 
C)  excess total spending. 
D)  tax increase. 
A)  minimum wage laws. 
B)  labor cost increases. 
C)  excess total spending. 
D)  tax increase.

Question 12

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)  The real interest rate equals the nominal rate of interest plus the inflation rate. 
D)  Real income is the actual number of dollars received over a period of time. 
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)  The real interest rate equals the nominal rate of interest plus the inflation rate. 
D)  Real income is the actual number of dollars received over a period of time.

Question 13

Suppose the consumer price index (CPI) for Year X is 130. This means the average price of goods and services is:

Accepted Answer

A)  currently $130. 
B)  130 percent more in Year X than in the base year. 
C)  130 percent more in the base year than in Year X. 
D)  priced at 30 percent more in Year X than in the base year. 
A)  currently $130. 
B)  130 percent more in Year X than in the base year. 
C)  130 percent more in the base year than in Year X. 
D)  priced at 30 percent more in Year X than in the base year.

Question 14

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 15

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 16

Consider borrowers and lenders who agree to loans with fixed nominal interest rates. If inflation is higher than what the borrowers and lenders expected, then who benefits from lower real interest rates?

Accepted Answer

A)  Only the borrowers benefit. 
B)  Only the lenders benefit. 
C)  Both borrowers and lenders benefit. 
D)  Neither borrowers nor lenders. 
A)  Only the borrowers benefit. 
B)  Only the lenders benefit. 
C)  Both borrowers and lenders benefit. 
D)  Neither borrowers nor lenders.

Exam 17: Inflation

Who is hurt and who benefits from inflation? Why?

Consider an economy with only two goods: bread and wine. In 1982, the typical family bought 4 loaves of bread at 50¢ per loaf and 2 bottles of wine for $9 per bottle. In Year X, bread cost 75¢ per loaf and wine cost $10 per bottle. The CPI for Year X (using a 1982 base year) is:

Assume that the real rate of interest is 5 percent and a lender charges a nominal interest rate of 15 percent. If a borrower expects that the rate of inflation next year will be 10 percent and the actual rate of inflation next year is 10 percent,

Suppose that your income during Year X was $50,000, and the CPI for Year X was 150 (base year = Z=100). Back in Year Z your income was $30,000. Has your real income increased or decreased from Z to year X? By how much?

One way the consumer price index (CPI) differs from the GDP chain price index is that the CPI:

How is inflation typically measured? What are the different types of inflation? Why is it important to know which type of inflation we may be experiencing?

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:

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:

The best definition of inflation is a(n):

Which of the following is true about inflation?

Demand-pull inflation is due to:

Which of the following statements is true ?

Suppose the consumer price index (CPI) for Year X is 130. This means the average price of goods and services is:

Hyperinflation refers to a situation in which:

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:

Consider borrowers and lenders who agree to loans with fixed nominal interest rates. If inflation is higher than what the borrowers and lenders expected, then who benefits from lower real interest rates?

Introducing the Economic Way of Thinking

Production Possibilities Opportunity Cost and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Consumer Choice Theory

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution Poverty and Discrimination

Antitrust and Regulation

Environmental Economics

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

Understanding Direct and Inverse Relationships between Variables

Filters