Question 1

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

Accepted Answer

A) True 
 B)False  True

Question 2

Suppose a market basket of goods and services costs $400 in the base year and the consumer price index (CPI)is currently 125.This indicates the price of the market basket of goods is now:

Accepted Answer

A)  $275. 
B)  $425. 
C)  $500. 
D)  $525. 
A)  $275. 
B)  $425. 
C)  $500. 
D)  $525. C

Question 3

The real interest rate is defined as the:

Accepted Answer

A)  actual interest rate. 
B)  fixed-rate on consumer loans. 
C)  nominal interest rate minus the inflation rate. 
D)  expected interest rate minus the inflation rate. 
A)  actual interest rate. 
B)  fixed-rate on consumer loans. 
C)  nominal interest rate minus the inflation rate. 
D)  expected interest rate minus the inflation rate. C

Question 4

The Consumer Price Index compares the:

Accepted Answer

A)  prices of all goods and services in the economy compared to the prices of those goods and services in a base year. 
B)  prices of consumer goods and services that a household purchases to the prices of those goods and services purchased in a base year. 
C)  prices of producer goods and services that are made for consumers to the prices of those goods and services in a base year. 
D)  prices of goods and services that are purchased by producers to the prices of those goods and services in a base year. 
E)  prices of goods and services that are purchased by consumer manufacturers to the prices of those goods and services in a base year. 
A)  prices of all goods and services in the economy compared to the prices of those goods and services in a base year. 
B)  prices of consumer goods and services that a household purchases to the prices of those goods and services purchased in a base year. 
C)  prices of producer goods and services that are made for consumers to the prices of those goods and services in a base year. 
D)  prices of goods and services that are purchased by producers to the prices of those goods and services in a base year. 
E)  prices of goods and services that are purchased by consumer manufacturers to the prices of those goods and services in a base year.

Question 5

Inflation is measured by an increase in:

Accepted Answer

A)  homes, autos and basic resources. 
B)  prices of all products in the economy. 
C)  the consumer price index (CPI). 
D)  none of the above. 
A)  homes, autos and basic resources. 
B)  prices of all products in the economy. 
C)  the consumer price index (CPI). 
D)  none of the above.

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 measure by the CP

Question 7

If the bank offers you a nominal interest rate of 9 percent on a student loan,and if inflation is 6 percent,then what is the real interest rate?

Accepted Answer

A)  15 percent. 
B)  9 percent. 
C)  6 percent. 
D)  3 percent. 
A)  15 percent. 
B)  9 percent. 
C)  6 percent. 
D)  3 percent.

Question 8

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 9

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 10

Which of the following statements is true?

Accepted Answer

A)  Demand-pull inflation is caused by excess total spending. 
B)  Cost-push inflation is caused by an increase in resource costs. 
C)  If nominal interest rates remain the same and the inflation rate falls, real interest rates increase. 
D)  If real interest rates are negative, lenders incur losses. 
E)  All of the above. 
A)  Demand-pull inflation is caused by excess total spending. 
B)  Cost-push inflation is caused by an increase in resource costs. 
C)  If nominal interest rates remain the same and the inflation rate falls, real interest rates increase. 
D)  If real interest rates are negative, lenders incur losses. 
E)  All of the above.

Question 11

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

Accepted Answer

A)  remains unchanged. 
B)  decreases. 
C)  increases. 
D)  changes by the inflation rate minus one. 
A)  remains unchanged. 
B)  decreases. 
C)  increases. 
D)  changes by the inflation rate minus one.

Question 12

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

Accepted Answer

A)  includes only purchases of items bought by typical urban consumers. 
B)  uses only current year quantities. 
C)  is based on all final goods and services. 
D)  includes only services. 
A)  includes only purchases of items bought by typical urban consumers. 
B)  uses only current year quantities. 
C)  is based on all final goods and services. 
D)  includes only services.

Question 13

Which of the following correctly defines inflation?

Accepted Answer

A)  An increase in the price of a particular good or service. 
B)  An increase in the general (average) price level of goods and services in the economy. 
C)  The growth rate in real GDP. 
D)  None of the above. 
A)  An increase in the price of a particular good or service. 
B)  An increase in the general (average) price level of goods and services in the economy. 
C)  The growth rate in real GDP. 
D)  None of the above.

Question 14

Suppose that last year you borrowed $100 at 5 percent interest to purchase a $100 pair of Nike cross-training shoes.This year you repaid the bank with interest.If the inflation rate was 10 percent last year,your purchase of the shoes would:

Accepted Answer

A)  make you an inflation winner as you saved $5 on the shoes. 
B)  make you an inflation loser as you paid $5 more than you should have for the shoes. 
C)  not be affected at all by the inflation rate. 
D)  be taxed according to COLA adjustments. 
E)  make you an inflation loser because of bracket creep. 
A)  make you an inflation winner as you saved $5 on the shoes. 
B)  make you an inflation loser as you paid $5 more than you should have for the shoes. 
C)  not be affected at all by the inflation rate. 
D)  be taxed according to COLA adjustments. 
E)  make you an inflation loser because of bracket creep.

Question 15

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

Question 16

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.

Question 17

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 18

An increase in the general price level is termed:

Accepted Answer

A)  the Consumer Price Index. 
B)  inflation. 
C)  deflation. 
D)  stagflation. 
E)  nominal pricing. 
A)  the Consumer Price Index. 
B)  inflation. 
C)  deflation. 
D)  stagflation. 
E)  nominal pricing.

Question 19

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 20

The CPI (using a 2000 base year)for 1965 is 26.0.Suppose a household's annual take-home pay in 1965 was $8,320.What would be an equivalent home pay in 2000?

Accepted Answer

A)  $10,483. 
B)  $21,632. 
C)  $23,680. 
D)  $32,000. 
A)  $10,483. 
B)  $21,632. 
C)  $23,680. 
D)  $32,000.

Exam 13: Inflation

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

Suppose a market basket of goods and services costs $400 in the base year and the consumer price index (CPI)is currently 125.This indicates the price of the market basket of goods is now:

The real interest rate is defined as the:

The Consumer Price Index compares the:

Inflation is measured by an increase in:

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?

If the bank offers you a nominal interest rate of 9 percent on a student loan,and if inflation is 6 percent,then what is the real interest rate?

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

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

Which of the following statements is true?

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

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

Which of the following correctly defines inflation?

Suppose that last year you borrowed $100 at 5 percent interest to purchase a $100 pair of Nike cross-training shoes.This year you repaid the bank with interest.If the inflation rate was 10 percent last year,your purchase of the shoes would:

Which of the following statements is true?

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

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:

An increase in the general price level is termed:

Which of the following is correct?

The CPI (using a 2000 base year)for 1965 is 26.0.Suppose a household's annual take-home pay in 1965 was $8,320.What would be an equivalent home pay in 2000?

Introducing the Economic Way of Thinking

A: Appendix: Applying Graphs to Economics

Production Possibilities,Opportunity Cost,and Economic Growth

Part 1: Market Demand and Supply

Part 2: 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

A: Appendix: The Self-Correcting Aggregate Demand and Supply Model

Fiscal Policy

The Public Sector

Federal Deficits,Surpluses,and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

A: Appendix: 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