Exam 13: Inflation

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:

Inflation is measured by an increase in:

Suppose that the consumer price index (CPI) was 160 in Year X and 166 in Year Y, inflation during Year Y was approximately:

Demand-pull inflation is typically caused by rapidly rising costs of production.

Cost-push inflation is due to:

Which of the following is the largest single component of the market basket used to compute the consumer price index (CPI)?​

Disinflation means a decrease in:

A measure comparing the prices of consumer goods and services that a household typically purchases to the prices of those goods and services purchased in a base year is

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

When the inflation rate rises, the purchasing power of nominal income:

Union contracts with built-in cost-of-living adjustments and home mortgages that vary with the rate of inflation are:

Deflation:

Who is hurt and who benefits from inflation? Why?

Cost-push inflation happens when technological innovation unexpectedly lowers the cost of production, causing increased demand for goods and services.

Exhibit 13-2  Consumer Price Index As shown in Exhibit 13-2, the rate of inflation for Year 3 is:

The substitution bias is believed to cause the consumer price index to:

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

The nominal rate of interest is any rate of interest below 3 percent.

Suppose the Organization of Petroleum Exporting Countries (OPEC) sharply increased the price of oil, which triggered higher inflation rates in the United States. This type of inflation is best classified as:

People with fixed incomes fare best in an inflationary period.