Question 1

Economists maintain that the wage rate that workers should really care about is

Accepted Answer

A)  both the real wage rate and the nominal wage rate 
B)  the nominal wage rate 
C)  the nominal wage rate multiplied by the real wage rate 
D)  neither the real wage rate nor the nominal wage rate 
E)  the real wage rate 
A)  both the real wage rate and the nominal wage rate 
B)  the nominal wage rate 
C)  the nominal wage rate multiplied by the real wage rate 
D)  neither the real wage rate nor the nominal wage rate 
E)  the real wage rate

Question 2

Which of the following would be included in the GDP Price Index but not in the Consumer Price Index?

Accepted Answer

A)  The price of a Chrysler automobile 
B)  The price of a fighter aircraft 
C)  The price of a used computer 
D)  The price of a tube of toothpaste 
E)  The price of a bottle of shampoo 
A)  The price of a Chrysler automobile 
B)  The price of a fighter aircraft 
C)  The price of a used computer 
D)  The price of a tube of toothpaste 
E)  The price of a bottle of shampoo

Question 3

Suppose that the government reports the following information on violent crime in a certain area: there were 1100 incidents in the base year (2007)and 1155 incidents in 2008.The person collecting these data wants to present them in the form of an index.What is the index for 2008?

Accepted Answer

A)  100.0 
B)  110.0 
C)  116.0 
D)  105.0 
E)  95.2 
A)  100.0 
B)  110.0 
C)  116.0 
D)  105.0 
E)  95.2

Question 4

If inflation is perfectly anticipated,benefits are indexed,and there are no restrictions on contracts,which group loses purchasing power because of inflation?

Accepted Answer

A)  Borrowers,lenders and retirees 
B)  Only borrowers 
C)  Neither lenders,borrowers,nor retirees 
D)  Only lenders 
E)  Only retirees 
A)  Borrowers,lenders and retirees 
B)  Only borrowers 
C)  Neither lenders,borrowers,nor retirees 
D)  Only lenders 
E)  Only retirees

Question 5

When borrowing money to purchase an automobile,Raul has the choice between a fixed nominal interest rate or adjustable nominal interest rate loan.Typically the adjustable rate loans start with a lower rate than the fixed rate loans.Given that,under what circumstances would Raul most likely want to borrow money at the higher fixed rate?

Accepted Answer

A)  When he expects the inflation rate to rise 
B)  When he expects the inflation rate to decrease 
C)  When he expects the inflation rate to remain unchanged 
D)  When he expects the price level to remain stable 
E)  When he expects the government to act to lower the inflation rate 
A)  When he expects the inflation rate to rise 
B)  When he expects the inflation rate to decrease 
C)  When he expects the inflation rate to remain unchanged 
D)  When he expects the price level to remain stable 
E)  When he expects the government to act to lower the inflation rate

Question 6

In which of the following situations would a worker have the greatest real income?

Accepted Answer

A)  She receives a pay cut and her nominal wage falls by 5 percent,while the CPI falls by 20 percent. 
B)  She receives a pay cut and her nominal wage falls by 5 percent,while the CPI increases by 10 percent. 
C)  Her nominal wage remains the same,as does the CPI. 
D)  She receives a raise and her nominal wage increases by 5 percent,while the CPI increases by 10 percent. 
E)  She receives a raise and her salary increases by 5 percent,while the CPI falls by 5 percent. 
A)  She receives a pay cut and her nominal wage falls by 5 percent,while the CPI falls by 20 percent. 
B)  She receives a pay cut and her nominal wage falls by 5 percent,while the CPI increases by 10 percent. 
C)  Her nominal wage remains the same,as does the CPI. 
D)  She receives a raise and her nominal wage increases by 5 percent,while the CPI increases by 10 percent. 
E)  She receives a raise and her salary increases by 5 percent,while the CPI falls by 5 percent.

Question 7

Jim is negotiating a contract for a labor union.The union wants to increase members' real wages by 4 percent.The inflation rate is predicted to be 7 percent.To attain the union's goal,Jim needs to negotiate a raise in the nominal

Accepted Answer

A)  wage of 4 percent 
B)  wage of 7 percent 
C)  wage of 11 percent 
D)  rate of 3 percent 
E)  rate of 28 percent 
A)  wage of 4 percent 
B)  wage of 7 percent 
C)  wage of 11 percent 
D)  rate of 3 percent 
E)  rate of 28 percent

Question 8

-Refer to Figure 7-1.Based on the figure,

Accepted Answer

A)  since 1990,the price level has fallen 
B)  the price level was the highest in 1980 
C)  since 1965,the price level has risen sometimes and fallen other times 
D)  since 1965,the price level has risen every year 
E)  cannot tell what has happened to the price level since 1965 
A)  since 1990,the price level has fallen 
B)  the price level was the highest in 1980 
C)  since 1965,the price level has risen sometimes and fallen other times 
D)  since 1965,the price level has risen every year 
E)  cannot tell what has happened to the price level since 1965

Question 9

If the base year for an index is 2005 and the value of the index in 2008 is 165.1,by what percent has the measure grown over those 3 years?

Accepted Answer

A)  165.1 percent 
B)  100.0 percent 
C)  6.51 percent 
D)  0 percent 
E)  65.1 percent 
A)  165.1 percent 
B)  100.0 percent 
C)  6.51 percent 
D)  0 percent 
E)  65.1 percent

Question 10

Suppose workers agreed to an indexed contract that increased their nominal wage by 4 percent plus 25 percent of any increase in the Consumer Price Index (CPI).If the CPI increased by 8 percent,what would be the change in the real wage?

Accepted Answer

A)  4 percent 
B)  -2 percent 
C)  0 percent 
D)  -4 percent 
E)  2 percent 
A)  4 percent 
B)  -2 percent 
C)  0 percent 
D)  -4 percent 
E)  2 percent

Question 11

Suppose that a labor union leader is trying to bargain for an increase in union workers' real wages of 5 percent.If he expected the price level to rise at a rate of 3 percent this year,how much would nominal wages need to increase for him to accomplish his objective?

Accepted Answer

A)  2 percent 
B)  3 percent 
C)  5 percent 
D)  8 percent 
E)  15 percent 
A)  2 percent 
B)  3 percent 
C)  5 percent 
D)  8 percent 
E)  15 percent

Question 12

Suppose that the inflation rate was 4 percent in 2002 and 3 percent in 2003.This would mean that

Accepted Answer

A)  the price level fell from 2002 to 2003 
B)  the price level fell at a faster rate in 2003 than in 2002 
C)  the price level rose at a faster rate in 2003 than in 2002 
D)  the price level rose at a slower rate in 2003 than in 2002 
E)  all prices in the economy rose at a rate of 3 percent in 2003 
A)  the price level fell from 2002 to 2003 
B)  the price level fell at a faster rate in 2003 than in 2002 
C)  the price level rose at a faster rate in 2003 than in 2002 
D)  the price level rose at a slower rate in 2003 than in 2002 
E)  all prices in the economy rose at a rate of 3 percent in 2003

Question 13

Careetha has just taken a fixed-rate loan and agreed to pay a nominal interest rate of 6 percent.If the inflation rate during the first year of the loan was 2 percent,her real interest rate that first year was

Accepted Answer

A)  6 percent 
B)  8 percent 
C)  4 percent 
D)  12 percent 
E)  impossible to calculate without additional information 
A)  6 percent 
B)  8 percent 
C)  4 percent 
D)  12 percent 
E)  impossible to calculate without additional information

Question 14

Whenever prices are rising,the inflation rate is rising.

Accepted Answer

A) True 
 B)False

Question 15

If Social Security is over-indexed,real payments

Accepted Answer

A)  are lower than they would be if they were correctly indexed. 
B)  are higher than they would be if they were correctly indexed. 
C)  are constant. 
D)  are decreasing. 
E)  are under-indexed. 
A)  are lower than they would be if they were correctly indexed. 
B)  are higher than they would be if they were correctly indexed. 
C)  are constant. 
D)  are decreasing. 
E)  are under-indexed.

Question 16

What is the value of any index in the base period?

Accepted Answer

A)  200 
B)  150 
C)  110 
D)  100 
E)  105 
A)  200 
B)  150 
C)  110 
D)  100 
E)  105

Question 17

Use the table below to find the real wage in 2008 (in 2007 dollars).
$$\begin{array} { | c | c | c | } 
\hline \text { Year } & \text { Naminal Wage (M) } & \text { CPI } \
\hline 2007 & \$ 13.33 & 113.2 \
2008 & \$ 13.00 & 110.0 \
\hline
\end{array}$$

Accepted Answer

A)  $13.00 
B)  $11.82 
C)  $14.30 
D)  $11.78 
E)  $11.48 
A)  $13.00 
B)  $11.82 
C)  $14.30 
D)  $11.78 
E)  $11.48

Question 18

When the value of a payment is adjusted in proportion to changes in the CPI,economists refer to that as

Accepted Answer

A)  nominalization 
B)  realization 
C)  indexation 
D)  stabilization 
E)  depreciation 
A)  nominalization 
B)  realization 
C)  indexation 
D)  stabilization 
E)  depreciation

Question 19

The Consumer Price Index (CPI)

Accepted Answer

A)  measures the prices of all goods produced in the economy 
B)  includes prices of raw materials 
C)  is found by averaging the prices of all goods consumed in the economy 
D)  includes only the prices of domestically produced consumer goods 
E)  includes the prices of some used consumer goods 
A)  measures the prices of all goods produced in the economy 
B)  includes prices of raw materials 
C)  is found by averaging the prices of all goods consumed in the economy 
D)  includes only the prices of domestically produced consumer goods 
E)  includes the prices of some used consumer goods

Question 20

Which of the following statements is true about the behavior of the CPI?

Accepted Answer

A)  It has risen steadily since 1960. 
B)  It has fallen steadily since 1960. 
C)  It fell during the 1960s and has risen ever since. 
D)  It rose sharply in the 1970s and then declined in the 1980s. 
E)  It has risen and fallen with roughly equal frequency since 1960. 
A)  It has risen steadily since 1960. 
B)  It has fallen steadily since 1960. 
C)  It fell during the 1960s and has risen ever since. 
D)  It rose sharply in the 1970s and then declined in the 1980s. 
E)  It has risen and fallen with roughly equal frequency since 1960.

Economists maintain that the wage rate that workers should really care about is

Which of the following would be included in the GDP Price Index but not in the Consumer Price Index?

Suppose that the government reports the following information on violent crime in a certain area: there were 1100 incidents in the base year (2007)and 1155 incidents in 2008.The person collecting these data wants to present them in the form of an index.What is the index for 2008?

If inflation is perfectly anticipated,benefits are indexed,and there are no restrictions on contracts,which group loses purchasing power because of inflation?

In which of the following situations would a worker have the greatest real income?

Jim is negotiating a contract for a labor union.The union wants to increase members' real wages by 4 percent.The inflation rate is predicted to be 7 percent.To attain the union's goal,Jim needs to negotiate a raise in the nominal

-Refer to Figure 7-1.Based on the figure,

If the base year for an index is 2005 and the value of the index in 2008 is 165.1,by what percent has the measure grown over those 3 years?

Suppose workers agreed to an indexed contract that increased their nominal wage by 4 percent plus 25 percent of any increase in the Consumer Price Index (CPI).If the CPI increased by 8 percent,what would be the change in the real wage?

Suppose that a labor union leader is trying to bargain for an increase in union workers' real wages of 5 percent.If he expected the price level to rise at a rate of 3 percent this year,how much would nominal wages need to increase for him to accomplish his objective?

Suppose that the inflation rate was 4 percent in 2002 and 3 percent in 2003.This would mean that

Careetha has just taken a fixed-rate loan and agreed to pay a nominal interest rate of 6 percent.If the inflation rate during the first year of the loan was 2 percent,her real interest rate that first year was

Whenever prices are rising,the inflation rate is rising.

If Social Security is over-indexed,real payments

What is the value of any index in the base period?

Use the table below to find the real wage in 2008 (in 2007 dollars). Year Naminal Wage (M) CPI 2007 \ 13.33 113.2 2008 \ 13.00 110.0

When the value of a payment is adjusted in proportion to changes in the CPI,economists refer to that as

The Consumer Price Index (CPI)

Which of the following statements is true about the behavior of the CPI?

What is Economics?

Scarcity, Choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

What Macroeconomics Tries to Explain

Production, Income, and Employment

The Classical Long run Model

Economic Growth and Rising Living Standards

Economic Fluctuations

The Short-run Macro Model

Fiscal Policy

Money, Banks, and the Federal Reserve

The Money Market and Monetary Policy

Aggregate Demand and Aggregate Supply

Inflation and Monetary Policy

Exchange Rates and Macroeconomic Policy

Filters

Exam 7: The Price Level and Inflation

Economists maintain that the wage rate that workers should really care about is

Which of the following would be included in the GDP Price Index but not in the Consumer Price Index?

Suppose that the government reports the following information on violent crime in a certain area: there were 1100 incidents in the base year (2007)and 1155 incidents in 2008.The person collecting these data wants to present them in the form of an index.What is the index for 2008?

If inflation is perfectly anticipated,benefits are indexed,and there are no restrictions on contracts,which group loses purchasing power because of inflation?

In which of the following situations would a worker have the greatest real income?

Jim is negotiating a contract for a labor union.The union wants to increase members' real wages by 4 percent.The inflation rate is predicted to be 7 percent.To attain the union's goal,Jim needs to negotiate a raise in the nominal

-Refer to Figure 7-1.Based on the figure,

If the base year for an index is 2005 and the value of the index in 2008 is 165.1,by what percent has the measure grown over those 3 years?

Suppose workers agreed to an indexed contract that increased their nominal wage by 4 percent plus 25 percent of any increase in the Consumer Price Index (CPI).If the CPI increased by 8 percent,what would be the change in the real wage?

Suppose that a labor union leader is trying to bargain for an increase in union workers' real wages of 5 percent.If he expected the price level to rise at a rate of 3 percent this year,how much would nominal wages need to increase for him to accomplish his objective?

Suppose that the inflation rate was 4 percent in 2002 and 3 percent in 2003.This would mean that

Careetha has just taken a fixed-rate loan and agreed to pay a nominal interest rate of 6 percent.If the inflation rate during the first year of the loan was 2 percent,her real interest rate that first year was

Whenever prices are rising,the inflation rate is rising.

If Social Security is over-indexed,real payments

What is the value of any index in the base period?

Use the table below to find the real wage in 2008 (in 2007 dollars). Year Naminal Wage (M) CPI 2007 \ 13.33 113.2 2008 \ 13.00 110.0

When the value of a payment is adjusted in proportion to changes in the CPI,economists refer to that as

The Consumer Price Index (CPI)

Which of the following statements is true about the behavior of the CPI?

What is Economics?

Scarcity, Choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

What Macroeconomics Tries to Explain

Production, Income, and Employment

The Classical Long run Model

Economic Growth and Rising Living Standards

Economic Fluctuations

The Short-run Macro Model

Fiscal Policy

Money, Banks, and the Federal Reserve

The Money Market and Monetary Policy

Aggregate Demand and Aggregate Supply

Inflation and Monetary Policy

Exchange Rates and Macroeconomic Policy

Filters