Question 1

Exhibit 13-1 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:

Accepted Answer

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

Question 2

The best definition of inflation is a(n):

Accepted Answer

A)  temporary increase in prices. 
B)  increase in the price of one important commodity such as food. 
C)  persistent increase in the general level of prices as measured by a price index. 
D)  increase in the purchasing power of the dollar. 
A)  temporary increase in prices. 
B)  increase in the price of one important commodity such as food. 
C)  persistent increase in the general level of prices as measured by a price index. 
D)  increase in the purchasing power of the dollar.

Question 3

If the consumer price index in Year 1 was 200 and the CPI for Year 2 was 230,the rate of inflation was:

Accepted Answer

A)  15 percent. 
B)  7.5 percent. 
C)  30 percent. 
D)  230 percent. 
A)  15 percent. 
B)  7.5 percent. 
C)  30 percent. 
D)  230 percent.

Question 4

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 5

Consider borrowers and lenders who agree to loans with fixed nominal interest rates.If inflation is higher than what the borrowers and lenders expected,then who benefits from lower real interest rates?

Accepted Answer

A)  Only the borrowers benefit. 
B)  Only the lenders benefit. 
C)  Both borrowers and lenders benefit. 
D)  Neither borrowers nor lenders. 
A)  Only the borrowers benefit. 
B)  Only the lenders benefit. 
C)  Both borrowers and lenders benefit. 
D)  Neither borrowers nor lenders.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Last year the Jones family earned $40,000.This year their income is $42,000.In an economy with an inflation rate of 10 percent,which of the following is correct?

Accepted Answer

A)  The Jones' nominal income and real income have both fallen. 
B)  The Jones' nominal income and real income have both risen. 
C)  The Jones' nominal income has increased and their real income has fallen. 
D)  The Jones' nominal income has decreased and their real income has risen. 
A)  The Jones' nominal income and real income have both fallen. 
B)  The Jones' nominal income and real income have both risen. 
C)  The Jones' nominal income has increased and their real income has fallen. 
D)  The Jones' nominal income has decreased and their real income has risen.

Question 8

If the nominal interest rate is 5 percent and there is no inflation,then the real interest rate:

Accepted Answer

A)  exceeds 5 percent. 
B)  is less than 5 percent. 
C)  is 5 percent. 
D)  is zero. 
A)  exceeds 5 percent. 
B)  is less than 5 percent. 
C)  is 5 percent. 
D)  is zero.

Question 9

Cost-push inflation is a result of an increase in the per unit costs of production.

Accepted Answer

A) True 
 B)False

Question 10

Which one of the following groups benefits from inflation?

Accepted Answer

A)  Borrowers. 
B)  Savers. 
C)  Landlords. 
D)  Lenders. 
A)  Borrowers. 
B)  Savers. 
C)  Landlords. 
D)  Lenders.

Question 11

The nominal rate of interest is equal to the real interest rate plus the inflation rate.

Accepted Answer

A) True 
 B)False

Question 12

Inflation reduces the purchasing power of nominal income and increases the purchasing power of fixed income.

Accepted Answer

A) True 
 B)False

Question 13

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 14

Exhibit 13-1 Consumer Price Index
  
-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 15

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

Accepted Answer

A) True 
 B)False

Question 16

Suppose a market basket of goods and services costs $1,000 in the base year and the consumer price index (CPI)is currently 110.This indicates the price of the market basket of goods and services is now:

Accepted Answer

A)  $110. 
B)  $1,000. 
C)  $1,100. 
D)  $1,225. 
A)  $110. 
B)  $1,000. 
C)  $1,100. 
D)  $1,225.

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Demand-pull inflation is associated with:

Accepted Answer

A)  decreasing total spending (demand). 
B)  increasing total spending (demand). 
C)  decreasing costs of production (supply). 
D)  increasing costs of production (supply). 
A)  decreasing total spending (demand). 
B)  increasing total spending (demand). 
C)  decreasing costs of production (supply). 
D)  increasing costs of production (supply).

Question 19

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

Accepted Answer

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

Question 20

The salary of the president of the United States in 2000 was $400,000.In 1940,the president's salary was $75,000.If the Consumer Price Index was 8.1 in 1940 and 100 in 2000,the 1940 presidential salary measured in terms of the purchasing power of the dollar in 2000 would be:

Accepted Answer

A)  less than $75,000. 
B)  less than $400,000. 
C)  approximately $668,850. 
D)  approximately $926,000. 
A)  less than $75,000. 
B)  less than $400,000. 
C)  approximately $668,850. 
D)  approximately $926,000.

Exam 13: Inflation

Exhibit 13-1 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:

The best definition of inflation is a(n):

If the consumer price index in Year 1 was 200 and the CPI for Year 2 was 230,the rate of inflation was:

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:

Consider borrowers and lenders who agree to loans with fixed nominal interest rates.If inflation is higher than what the borrowers and lenders expected,then who benefits from lower real interest rates?

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

Last year the Jones family earned $40,000.This year their income is $42,000.In an economy with an inflation rate of 10 percent,which of the following is correct?

If the nominal interest rate is 5 percent and there is no inflation,then the real interest rate:

Cost-push inflation is a result of an increase in the per unit costs of production.

Which one of the following groups benefits from inflation?

The nominal rate of interest is equal to the real interest rate plus the inflation rate.

Inflation reduces the purchasing power of nominal income and increases the purchasing power of fixed income.

Deflation means a decrease in:

Exhibit 13-1 Consumer Price Index -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?

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

Suppose a market basket of goods and services costs $1,000 in the base year and the consumer price index (CPI)is currently 110.This indicates the price of the market basket of goods and services is now:

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

Demand-pull inflation is associated with:

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

The salary of the president of the United States in 2000 was $400,000.In 1940,the president's salary was $75,000.If the Consumer Price Index was 8.1 in 1940 and 100 in 2000,the 1940 presidential salary measured in terms of the purchasing power of the dollar in 2000 would be:

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