Question 1

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 2

Price indexes like the CPI are calculated using a base year. The term base year refers to:

Accepted Answer

A)  the first year that price data are available. 
B)  any year in which inflation was higher than 5 percent. 
C)  the most recent year in which the business cycle hit the trough. 
D)  an arbitrarily chosen reference year. 
A)  the first year that price data are available. 
B)  any year in which inflation was higher than 5 percent. 
C)  the most recent year in which the business cycle hit the trough. 
D)  an arbitrarily chosen reference year.

Question 3

Demand-pull inflation happens during periods of full employment in the business cycle when demand for goods and services is growing faster than supply.

Accepted Answer

A) True 
 B)False

Question 4

Suppose hypothetically that you buy a lot of food such as tofu, veggie burgers, and organic fruit that are not included in the market basket used to compute the CPI. In addition, suppose that all of these goods have become cheaper over the last year, while the overall CPI has increased by 6 percent. Then which of the following is true ? ​

Accepted Answer

A)  ​The CPI will understate the negative impact of inflation on your purchasing power and standard of living. 
B)  ​The CPI will still accurately state the negative impact of inflation on your purchasing power and standard of living. 
C)  ​The CPI will overstate the negative impact of inflation on your purchasing power and standard of living. 
D)  ​None of the answers above are correct. 
A)  ​The CPI will understate the negative impact of inflation on your purchasing power and standard of living. 
B)  ​The CPI will still accurately state the negative impact of inflation on your purchasing power and standard of living. 
C)  ​The CPI will overstate the negative impact of inflation on your purchasing power and standard of living. 
D)  ​None of the answers above are correct.

Question 5

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 6

The consumer price index (CPI) is a number that measures movements in the average (general) level of prices.

Accepted Answer

A) True 
 B)False

Question 7

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 8

Inflation is an increase in:

Accepted Answer

A)  prices of all products in the economy. 
B)  homes, autos and basic resources. 
C)  the general price level of products. 
D)  none of the above. 
A)  prices of all products in the economy. 
B)  homes, autos and basic resources. 
C)  the general price level of products. 
D)  none of the above.

Question 9

Suppose the price of banana rises over time and consumers respond by buying fewer bananas. This situation contributes 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 10

Suppose a market basket of goods and services costs $400 in the base year and $500 this year. The consumer price index (CPI) for this year is:

Accepted Answer

A)  25. 
B)  100. 
C)  125. 
D)  500. 
A)  25. 
B)  100. 
C)  125. 
D)  500.

Question 11

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 12

Cost-push inflation is due to:

Accepted Answer

A)  labor cost increases. 
B)  energy cost increases. 
C)  raw material cost increases. 
D)  all of the above. 
A)  labor cost increases. 
B)  energy cost increases. 
C)  raw material cost increases. 
D)  all of the above.

Question 13

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 14

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 15

If the rate of inflation in a given time period turns out to be lower than lenders and borrowers anticipated, then the effect will be:

Accepted Answer

A)  a redistribution of wealth from borrowers to lenders. 
B)  a redistribution of wealth from lenders to borrowers. 
C)  a net loss in purchasing power for lenders relative to borrowers. 
D)  a net gain in purchasing power for borrowers relative to lenders. 
A)  a redistribution of wealth from borrowers to lenders. 
B)  a redistribution of wealth from lenders to borrowers. 
C)  a net loss in purchasing power for lenders relative to borrowers. 
D)  a net gain in purchasing power for borrowers relative to lenders.

Question 16

Cost-push inflation is caused by too much money chasing too few goods.

Accepted Answer

A) True 
 B)False

Question 17

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 18

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 19

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 20

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.

Exam 13: Inflation

The real interest rate can be expressed as the:

Price indexes like the CPI are calculated using a base year. The term base year refers to:

Demand-pull inflation happens during periods of full employment in the business cycle when demand for goods and services is growing faster than supply.

Which of the following can create demand-pull inflation?

The consumer price index (CPI) is a number that measures movements in the average (general) level of prices.

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:

Inflation is an increase in:

Suppose the price of banana rises over time and consumers respond by buying fewer bananas. This situation contributes to which bias in the consumer price index?

Suppose a market basket of goods and services costs $400 in the base year and $500 this year. The consumer price index (CPI) for this year is:

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.

Cost-push inflation is due to:

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

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:

If the rate of inflation in a given time period turns out to be lower than lenders and borrowers anticipated, then the effect will be:

Cost-push inflation is caused by too much money chasing too few goods.

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:

Which of the following is true about 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?

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

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

Filters