Question 1

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 2

Which of the following is correct?

Accepted Answer

A)  People whose nominal incomes rise faster than the rate of inflation gain purchasing power. 
B)  Real income equals nominal income divided by the CPI as a decimal. 
C)  The percentage change in real income equals the percentage change in nominal income minus the percentage change in CPI. 
D)  All of the above. 
A)  People whose nominal incomes rise faster than the rate of inflation gain purchasing power. 
B)  Real income equals nominal income divided by the CPI as a decimal. 
C)  The percentage change in real income equals the percentage change in nominal income minus the percentage change in CPI. 
D)  All of the above.

Question 3

The real interest rate is the annual percentage amount of money that is earned on a sum loaned or deposited in a bank.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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 6

Inflation psychosis and wage-price spirals are two types of hyperinflation.

Accepted Answer

A) True 
 B)False

Question 7

Deflation means a decrease in:

Accepted Answer

A)  the rate of inflation. 
B)  the prices of all products in the economy. 
C)  homes, autos, and basic resources. 
D)  the general level of prices in the economy. 
A)  the rate of inflation. 
B)  the prices of all products in the economy. 
C)  homes, autos, and basic resources. 
D)  the general level of prices in the economy.

Question 8

Inflation is defined as an increase in:

Accepted Answer

A)  real wages of workers. 
B)  real GDP. 
C)  the average price level. 
D)  all consumer products. 
A)  real wages of workers. 
B)  real GDP. 
C)  the average price level. 
D)  all consumer products.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

In periods of high inflation,

Accepted Answer

A)  people want to hold on to as much money as possible. 
B)  the purchasing power of money is decreasing. 
C)  nobody wants to work and earn income. 
D)  low nominal interest rates are likely to result. 
E)  nobody wants to buy goods and services. 
A)  people want to hold on to as much money as possible. 
B)  the purchasing power of money is decreasing. 
C)  nobody wants to work and earn income. 
D)  low nominal interest rates are likely to result. 
E)  nobody wants to buy goods and services.

Question 11

Exhibit 13-2  Consumer Price Index   As shown in Exhibit 13-2, the rate of inflation for Year 4 is:

Accepted Answer

A)  5 percent. 
B)  10 percent. 
C)  19 percent. 
D)  20 percent. 
E)  25 percent. 
A)  5 percent. 
B)  10 percent. 
C)  19 percent. 
D)  20 percent. 
E)  25 percent.

Question 12

Those hurt by inflation include:

Accepted Answer

A)  labor unions with COLA clauses. 
B)  borrowers. 
C)  savers. 
D)  owners of real estate. 
E)  owners of precious metals, antiques, and works of art. 
A)  labor unions with COLA clauses. 
B)  borrowers. 
C)  savers. 
D)  owners of real estate. 
E)  owners of precious metals, antiques, and works of art.

Question 13

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 measure by the CP

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Unlike the GDP deflator, the CPI does not consider goods and services purchased by business and government.

Accepted Answer

A) True 
 B)False

Question 16

A sustained decrease in the price level is known as deflation.

Accepted Answer

A) True 
 B)False

Question 17

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 18

What are some criticisms of the CPI as a measure of inflation?

Accepted Answer

The CPI is criticized as a measure of in

Question 19

Exhibit 13-1  Consumer Price Index   As shown in Exhibit 13-1, the rate of inflation for Year 5 is:

Accepted Answer

A)  4.2 percent 
B)  5 percent. 
C)  20 percent. 
D)  25 percent. 
A)  4.2 percent 
B)  5 percent. 
C)  20 percent. 
D)  25 percent.

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 13: Inflation

A worker would be hurt least by inflation when the:

Which of the following is correct?

The real interest rate is the annual percentage amount of money that is earned on a sum loaned or deposited in a bank.

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

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

Inflation psychosis and wage-price spirals are two types of hyperinflation.

Deflation means a decrease in:

Inflation is defined as an increase in:

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

In periods of high inflation,

Exhibit 13-2 Consumer Price Index As shown in Exhibit 13-2, the rate of inflation for Year 4 is:

Those hurt by inflation include:

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?

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

Unlike the GDP deflator, the CPI does not consider goods and services purchased by business and government.

A sustained decrease in the price level is known as deflation.

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?

What are some criticisms of the CPI as a measure of inflation?

Exhibit 13-1 Consumer Price Index As shown in Exhibit 13-1, the rate of inflation for Year 5 is:

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

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Money Creation

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

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

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