Question 1

Exhibit 13-1 Consumer Price Index
  
-As shown in Exhibit 13-1,the rate of inflation for Year 5 is:

Accepted Answer

A)  4.2 percent 
B)  5 percent. 
C)  20 percent. 
D)  25 percent. 
A)  4.2 percent 
B)  5 percent. 
C)  20 percent. 
D)  25 percent.

Question 2

Deflation:

Accepted Answer

A)  was prevalent during the oil shocks of the 1970s. 
B)  will cause consumers' purchasing power to shrink. 
C)  has been persistent in the U.S. economy since the Great Depression. 
D)  none of the above. 
A)  was prevalent during the oil shocks of the 1970s. 
B)  will cause consumers' purchasing power to shrink. 
C)  has been persistent in the U.S. economy since the Great Depression. 
D)  none of the above.

Question 3

Inflation psychosis and wage-price spirals are two types of hyperinflation.

Accepted Answer

A) True 
 B)False

Question 4

In periods of high inflation,

Accepted Answer

A)  people want to hold on to as much money as possible. 
B)  the purchasing power of money is decreasing. 
C)  nobody wants to work and earn income. 
D)  low nominal interest rates are likely to result. 
E)  nobody wants to buy goods and services. 
A)  people want to hold on to as much money as possible. 
B)  the purchasing power of money is decreasing. 
C)  nobody wants to work and earn income. 
D)  low nominal interest rates are likely to result. 
E)  nobody wants to buy goods and services.

Question 5

During periods of inflation,the general price level of goods and services in the economy rises.

Accepted Answer

A) True 
 B)False

Question 6

Who is hurt and who benefits from inflation? Why?

Accepted Answer

Inflation hurts those on fixed incomes,t

Question 7

As inflation drives up prices,people attempt to find substitutes and adjust what they buy.The resulting substitution bias problem causes the CPI to:

Accepted Answer

A)  overstate the impact of higher prices on consumers. 
B)  consistently underestimate the true inflation rate. 
C)  omit the benefits of product quality improvements. 
D)  have larger fluctuations than other price indexes. 
A)  overstate the impact of higher prices on consumers. 
B)  consistently underestimate the true inflation rate. 
C)  omit the benefits of product quality improvements. 
D)  have larger fluctuations than other price indexes.

Question 8

A reduction in the rate of inflation is called:

Accepted Answer

A)  deflation. 
B)  disinflation. 
C)  hyperinflation. 
D)  cost-push inflation. 
A)  deflation. 
B)  disinflation. 
C)  hyperinflation. 
D)  cost-push inflation.

Question 9

Suppose that the consumer price index of a country was 160 at Year X and 168 at the end of Year Y.What was the country's inflation rate during Year Y?

Accepted Answer

A)  5 percent. 
B)  8 percent. 
C)  60 percent. 
D)  68 percent. 
A)  5 percent. 
B)  8 percent. 
C)  60 percent. 
D)  68 percent.

Question 10

Demand-pull inflation is most pronounced during a recession (as opposed to the recovery phase of the business cycle).

Accepted Answer

A) True 
 B)False

Question 11

Suppose hypothetically that the consumer price index (CPI)was 150 in Year 1 and was 180 in Year 2.What would be the inflation rate for this period?

Accepted Answer

A)  12 percent. 
B)  16.7 percent. 
C)  20 percent. 
D)  30 percent. 
A)  12 percent. 
B)  16.7 percent. 
C)  20 percent. 
D)  30 percent.

Question 12

Cost-push inflation is due to:

Accepted Answer

A)  labor cost increases. 
B)  energy cost increases. 
C)  raw material cost increases. 
D)  all of the above. 
A)  labor cost increases. 
B)  energy cost increases. 
C)  raw material cost increases. 
D)  all of the above.

Question 13

The consumer price index (CPI):

Accepted Answer

A)  adjusts for changes in product quality. 
B)  includes separate market baskets of goods and services for both base and current years. 
C)  includes only goods and services bought by typical urban consumer. 
D)  uses current year quantities of goods and services. 
A)  adjusts for changes in product quality. 
B)  includes separate market baskets of goods and services for both base and current years. 
C)  includes only goods and services bought by typical urban consumer. 
D)  uses current year quantities of goods and services.

Question 14

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

Accepted Answer

A)  uses current year quantities of goods and services. 
B)  includes separate market baskets of goods and services for both base and current years. 
C)  includes only goods and services bought by typical urban consumers. 
D)  is bias free. 
A)  uses current year quantities of goods and services. 
B)  includes separate market baskets of goods and services for both base and current years. 
C)  includes only goods and services bought by typical urban consumers. 
D)  is bias free.

Question 15

Demand-pull inflation is due to:

Accepted Answer

A)  minimum wage laws. 
B)  labor cost increases. 
C)  excess total spending. 
D)  tax increase. 
A)  minimum wage laws. 
B)  labor cost increases. 
C)  excess total spending. 
D)  tax increase.

Question 16

Tina Cole and her husband bought a deferred annuity that started paying them $700 a month in retirement benefits.They,along with millions of other people who live on fixed incomes,are examples of:

Accepted Answer

A)  those who are responsible for inflation. 
B)  the big winners from inflation. 
C)  the big losers from inflation. 
D)  the paradox of thrift. 
E)  stock market losers. 
A)  those who are responsible for inflation. 
B)  the big winners from inflation. 
C)  the big losers from inflation. 
D)  the paradox of thrift. 
E)  stock market losers.

Question 17

The consumer price index (CPI)includes only a market basket of goods and services purchased by the typical urban consumer.

Accepted Answer

A) True 
 B)False

Question 18

Unlike the GDP deflator,the CPI does not consider goods and services purchased by business and government.

Accepted Answer

A) True 
 B)False

Question 19

The nominal rate of interest is any rate of interest below 3 percent.

Accepted Answer

A) True 
 B)False

Question 20

Suppose that your income during Year X was $50,000,and the CPI for Year X was 150 (base year = Z.Back in Year Z your income was $30,000.Has your real income increased or decreased from Z to year X? By how much?

Accepted Answer

A)  Increased by $5,000. 
B)  Increased by $3,333.33. 
C)  Unchanged. 
D)  Decreased by $3,333.33. 
E)  Decreased by $5,000. 
A)  Increased by $5,000. 
B)  Increased by $3,333.33. 
C)  Unchanged. 
D)  Decreased by $3,333.33. 
E)  Decreased by $5,000.

Exam 13: Inflation

Exhibit 13-1 Consumer Price Index -As shown in Exhibit 13-1,the rate of inflation for Year 5 is:

Deflation:

Inflation psychosis and wage-price spirals are two types of hyperinflation.

In periods of high inflation,

During periods of inflation,the general price level of goods and services in the economy rises.

Who is hurt and who benefits from inflation? Why?

As inflation drives up prices,people attempt to find substitutes and adjust what they buy.The resulting substitution bias problem causes the CPI to:

A reduction in the rate of inflation is called:

Suppose that the consumer price index of a country was 160 at Year X and 168 at the end of Year Y.What was the country's inflation rate during Year Y?

Demand-pull inflation is most pronounced during a recession (as opposed to the recovery phase of the business cycle).

Suppose hypothetically that the consumer price index (CPI)was 150 in Year 1 and was 180 in Year 2.What would be the inflation rate for this period?

Cost-push inflation is due to:

The consumer price index (CPI):

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

Demand-pull inflation is due to:

Tina Cole and her husband bought a deferred annuity that started paying them $700 a month in retirement benefits.They,along with millions of other people who live on fixed incomes,are examples of:

The consumer price index (CPI)includes only a market basket of goods and services purchased by the typical urban consumer.

Unlike the GDP deflator,the CPI does not consider goods and services purchased by business and government.

The nominal rate of interest is any rate of interest below 3 percent.

Suppose that your income during Year X was $50,000,and the CPI for Year X was 150 (base year = Z.Back in Year Z your income was $30,000.Has your real income increased or decreased from Z to year X? By how much?

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