Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

A dramatic and sustained increase in oil prices would most likely:

Accepted Answer

A)  increase demand-pull inflation. 
B)  decrease demand-pull inflation. 
C)  increase cost-push inflation. 
D)  decrease cost-push inflation. 
A)  increase demand-pull inflation. 
B)  decrease demand-pull inflation. 
C)  increase cost-push inflation. 
D)  decrease cost-push inflation.

Question 3

Disinflation and deflation mean a decrease in the average price level.

Accepted Answer

A) True 
 B)False

Question 4

If the inflation rate exceeds the nominal rate of interest,

Accepted Answer

A)  the real interest rate is negative. 
B)  lenders lose. 
C)  savers lose. 
D)  all of the above. 
A)  the real interest rate is negative. 
B)  lenders lose. 
C)  savers lose. 
D)  all of the above.

Question 5

Exhibit 13-2 Consumer Price Index
  
-As shown in Exhibit 13-2,the rate of inflation for Year 3 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 6

Demand-pull inflation occurs:

Accepted Answer

A)  at or close to full employment. 
B)  because of excess total spending. 
C)  when "too much money is chasing too few goods." 
D)  all of the above. 
A)  at or close to full employment. 
B)  because of excess total spending. 
C)  when "too much money is chasing too few goods." 
D)  all of the above.

Question 7

A consumer price index of 110 for a given year indicates that prices in that year are 10 percent higher than prices in the base year.

Accepted Answer

A) True 
 B)False

Question 8

Union contracts with built-in cost-of-living adjustments and home mortgages that vary with the rate of inflation are:

Accepted Answer

A)  inappropriate ways of combating inflation. 
B)  examples of bracket creep. 
C)  means of implementing fiscal policy. 
D)  steps that can be taken to decrease the adverse impacts of inflation. 
E)  examples of failed discarded policies of the 1970s. 
A)  inappropriate ways of combating inflation. 
B)  examples of bracket creep. 
C)  means of implementing fiscal policy. 
D)  steps that can be taken to decrease the adverse impacts of inflation. 
E)  examples of failed discarded policies of the 1970s.

Question 9

The consumer price index (CPI)is computed as the ratio of nominal GDP to real GDP.

Accepted Answer

A) True 
 B)False

Question 10

Demand-pull inflation occurs during a period of time in which total spending is increasing less than total output (GDP)is increasing.

Accepted Answer

A) True 
 B)False

Question 11

In which of the following years was inflation in the United States the highest?

Accepted Answer

A)  1960. 
B)  1970. 
C)  1980. 
D)  1990. 
E)  2007. 
A)  1960. 
B)  1970. 
C)  1980. 
D)  1990. 
E)  2007.

Question 12

Inflation:

Accepted Answer

A)  reduces the cost-of-living of the typical worker. 
B)  is measured by changes in the cost of a typical market basket of goods between time periods. 
C)  causes the purchasing power of a dollar to rise. 
D)  has no effect on real income. 
A)  reduces the cost-of-living of the typical worker. 
B)  is measured by changes in the cost of a typical market basket of goods between time periods. 
C)  causes the purchasing power of a dollar to rise. 
D)  has no effect on real income.

Question 13

If consumers reduce the purchase of goods whose relative prices rise (substitution bias),the consumer price index (CPI)will tend to have an upward bias over time (overstates inflation).

Accepted Answer

A) True 
 B)False

Question 14

A worker would be hurt least by inflation when the:

Accepted Answer

A)  worker anticipates inflation and increases savings at the bank. 
B)  worker is protected by a cost-of-living adjustment clause in an employment contract. 
C)  price level increases but at a decreasing rate. 
D)  worker is protected by fixed annual increases in wages and benefits in an employment contract. 
A)  worker anticipates inflation and increases savings at the bank. 
B)  worker is protected by a cost-of-living adjustment clause in an employment contract. 
C)  price level increases but at a decreasing rate. 
D)  worker is protected by fixed annual increases in wages and benefits in an employment contract.

Question 15

Which of the following is true of inflation?

Accepted Answer

A)  It is an increase in the general price level of goods and services. 
B)  The purchasing power of money increases as the result of inflation. 
C)  Inflation is similar to interest payments on future money income, such as pensions and receipts from outstanding loans. 
D)  Inflation has no effect on real income. 
A)  It is an increase in the general price level of goods and services. 
B)  The purchasing power of money increases as the result of inflation. 
C)  Inflation is similar to interest payments on future money income, such as pensions and receipts from outstanding loans. 
D)  Inflation has no effect on real income.

Question 16

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 17

Those hurt by inflation include:

Accepted Answer

A)  labor unions with COLA clauses. 
B)  borrowers. 
C)  savers. 
D)  owners of real estate. 
E)  owners of precious metals, antiques, and works of art. 
A)  labor unions with COLA clauses. 
B)  borrowers. 
C)  savers. 
D)  owners of real estate. 
E)  owners of precious metals, antiques, and works of art.

Question 18

Suppose that the consumer price index (CPI)was 160 in Year X and 166 in Year Y,inflation during Year Y was approximately:

Accepted Answer

A)  zero; prices were stable. 
B)  3.8 percent. 
C)  6 percent. 
D)  66 percent. 
A)  zero; prices were stable. 
B)  3.8 percent. 
C)  6 percent. 
D)  66 percent.

Question 19

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 20

Exhibit 13-1 Consumer Price Index
  
-As shown in Exhibit 13-1,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.

Exam 13: Inflation

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

A dramatic and sustained increase in oil prices would most likely:

Disinflation and deflation mean a decrease in the average price level.

If the inflation rate exceeds the nominal rate of interest,

Exhibit 13-2 Consumer Price Index -As shown in Exhibit 13-2,the rate of inflation for Year 3 is:

Demand-pull inflation occurs:

A consumer price index of 110 for a given year indicates that prices in that year are 10 percent higher than prices in the base year.

Union contracts with built-in cost-of-living adjustments and home mortgages that vary with the rate of inflation are:

The consumer price index (CPI)is computed as the ratio of nominal GDP to real GDP.

Demand-pull inflation occurs during a period of time in which total spending is increasing less than total output (GDP)is increasing.

In which of the following years was inflation in the United States the highest?

Inflation:

If consumers reduce the purchase of goods whose relative prices rise (substitution bias),the consumer price index (CPI)will tend to have an upward bias over time (overstates inflation).

A worker would be hurt least by inflation when the:

Which of the following is true of inflation?

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:

Those hurt by inflation include:

Suppose that the consumer price index (CPI)was 160 in Year X and 166 in Year Y,inflation during Year Y was approximately:

Which of the following is true about inflation?

Exhibit 13-1 Consumer Price Index -As shown in Exhibit 13-1,the rate of inflation for Year 2 is:

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