Question 1

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 2

Real income is the purchasing power of nominal (money)income.

Accepted Answer

A) True 
 B)False

Question 3

As the price of gasoline rose during the 1970s,consumers cut back on their use of gasoline relative to other consumer goods.This situation contributed 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 4

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 5

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

Accepted Answer

A)  a redistribution of wealth from borrowers to lenders. 
B)  a net gain in purchasing power for lenders relative to borrowers. 
C)  no change in the distribution of wealth between lenders and borrowers. 
D)  none of the above. 
A)  a redistribution of wealth from borrowers to lenders. 
B)  a net gain in purchasing power for lenders relative to borrowers. 
C)  no change in the distribution of wealth between lenders and borrowers. 
D)  none of the above.

Question 6

Suppose we shopped for a basket of goods in Year 1 and it cost $350.Suppose the same basket of goods adds up to $385 in Year 2.If we use Year 1 as a base year,what would be the Year 2 CPI?

Accepted Answer

A)  35. 
B)  90. 
C)  100. 
D)  110. 
E)  135. 
A)  35. 
B)  90. 
C)  100. 
D)  110. 
E)  135.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Consider an economy with only two goods: bread and wine.In 1982,the typical family bought 4 loaves of bread at 50¢ per loaf and 2 bottles of wine for $9 per bottle.In Year X,bread cost 75¢ per loaf and wine cost $10 per bottle.The CPI for Year X (using a 1982 base year)is:

Accepted Answer

A)  100. 
B)  115. 
C)  126. 
D)  130. 
A)  100. 
B)  115. 
C)  126. 
D)  130.

Question 9

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 10

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 11

If the consumer price index (CPI)in Year X was 300 and the CPI in Year Y was 325,the rate of inflation for Year Y was:

Accepted Answer

A)  325 percent. 
B)  25 percent. 
C)  5 percent. 
D)  8 percent. 
A)  325 percent. 
B)  25 percent. 
C)  5 percent. 
D)  8 percent.

Question 12

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 13

Real income for a given year would be less than nominal income in that year if:

Accepted Answer

A)  the consumer price index was less than 100 in that year. 
B)  nominal income in that year was greater than nominal income in the previous year. 
C)  nominal income in that year was less than nominal income in the previous year. 
D)  the consumer price index was greater than 100 in that year. 
A)  the consumer price index was less than 100 in that year. 
B)  nominal income in that year was greater than nominal income in the previous year. 
C)  nominal income in that year was less than nominal income in the previous year. 
D)  the consumer price index was greater than 100 in that year.

Question 14

Losers from inflation include:

Accepted Answer

A)  savers and borrowers. 
B)  landlords and the government. 
C)  borrowers and the government. 
D)  those on a fixed income and borrowers. 
E)  those on a fixed income and savers. 
A)  savers and borrowers. 
B)  landlords and the government. 
C)  borrowers and the government. 
D)  those on a fixed income and borrowers. 
E)  those on a fixed income and savers.

Question 15

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

Accepted Answer

The CPI is criticized as a measure of in

Question 16

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 17

Demand-pull inflation is typically caused by rapidly rising costs of production.

Accepted Answer

A) True 
 B)False

Question 18

The substitution bias is believed to cause the consumer price index to:

Accepted Answer

A)  overstate the true rate of inflation. 
B)  understate the true rate of inflation. 
C)  understate the true GDP deflator. 
D)  none of the above. 
A)  overstate the true rate of inflation. 
B)  understate the true rate of inflation. 
C)  understate the true GDP deflator. 
D)  none of the above.

Question 19

The likely result of an economy operating at full employment is:

Accepted Answer

A)  cost-push inflation. 
B)  demand-pull inflation. 
C)  a lower rate of growth. 
D)  hyperinflation. 
A)  cost-push inflation. 
B)  demand-pull inflation. 
C)  a lower rate of growth. 
D)  hyperinflation.

Question 20

Which of the following correctly describes a wage-price spiral?

Accepted Answer

A)  An increase in nominal wages causes inflation, and inflation causes workers to demand even higher wages in order to keep their real income constant. This cycle can repeat itself. 
B)  An increase in real wages due to growth in worker productivity causes inflation, which in turn increases worker productivity. 
C)  A decrease in prices causes workers to demand higher wages, which in turn puts additional downward pressure on prices. 
D)  None of the above. 
A)  An increase in nominal wages causes inflation, and inflation causes workers to demand even higher wages in order to keep their real income constant. This cycle can repeat itself. 
B)  An increase in real wages due to growth in worker productivity causes inflation, which in turn increases worker productivity. 
C)  A decrease in prices causes workers to demand higher wages, which in turn puts additional downward pressure on prices. 
D)  None of the above.

Exam 13: Inflation

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

Real income is the purchasing power of nominal (money)income.

As the price of gasoline rose during the 1970s,consumers cut back on their use of gasoline relative to other consumer goods.This situation contributed to which bias in the consumer price index?

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?

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

Suppose we shopped for a basket of goods in Year 1 and it cost $350.Suppose the same basket of goods adds up to $385 in Year 2.If we use Year 1 as a base year,what would be the Year 2 CPI?

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

Consider an economy with only two goods: bread and wine.In 1982,the typical family bought 4 loaves of bread at 50¢ per loaf and 2 bottles of wine for $9 per bottle.In Year X,bread cost 75¢ per loaf and wine cost $10 per bottle.The CPI for Year X (using a 1982 base 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.

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

If the consumer price index (CPI)in Year X was 300 and the CPI in Year Y was 325,the rate of inflation for Year Y was:

Inflation is defined as an increase in:

Real income for a given year would be less than nominal income in that year if:

Losers from inflation include:

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

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

Demand-pull inflation is typically caused by rapidly rising costs of production.

The substitution bias is believed to cause the consumer price index to:

The likely result of an economy operating at full employment is:

Which of the following correctly describes a wage-price spiral?

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

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