Question 1

If workers received a 5 percent wage increase and the rate of inflation was 3 percent, then their real wage:

Accepted Answer

A) increased. 
B) decreased. 
C) remained constant. 
D) equaled the nominal wage. 
A) increased. 
B) decreased. 
C) remained constant. 
D) equaled the nominal wage.

Question 2

A measure of overall prices at a particular point in time is called:

Accepted Answer

A) a relative price. 
B) the price level. 
C) a real price. 
D) inflation. 
A) a relative price. 
B) the price level. 
C) a real price. 
D) inflation.

Question 3

If the consumer price index increased from 1.52 to 1.65, then it must be the case that ________ relative to prices in the base year.

Accepted Answer

A) all prices rose 
B) the weighted average level of prices rose 
C) all prices fell 
D) some prices rose and some prices fell 
A) all prices rose 
B) the weighted average level of prices rose 
C) all prices fell 
D) some prices rose and some prices fell

Question 4

An extremely high rate of inflation is called ________.

Accepted Answer

A) super inflation 
B) deflation 
C) disinflation 
D) hyperinflation 
A) super inflation 
B) deflation 
C) disinflation 
D) hyperinflation

Question 5

The typical family on the Planet Econ consumes 10 pizzas, 7 pairs of jeans, and 20 gallons of milk. In 2016, pizzas cost $10 each, jeans cost $40 per pair, and milk cost $3 per gallon. In 2017, the price of pizzas increased to $14 each, while the price of jeans and milk remained the same. Between 2016 and 2017, a typical family's cost of living:

Accepted Answer

A) increased by 9 percent. 
B) decreased by 9 percent. 
C) remained the same. 
D) increased by 40 percent. 
A) increased by 9 percent. 
B) decreased by 9 percent. 
C) remained the same. 
D) increased by 40 percent.

Question 6

To correct a nominal quantity for changes in the price level, one should:

Accepted Answer

A) add a price index to it. 
B) subtract a price index from it. 
C) divide it by a price index. 
D) multiply it by a price index. 
A) add a price index to it. 
B) subtract a price index from it. 
C) divide it by a price index. 
D) multiply it by a price index.

Question 7

A labor contract provides for a first-year wage of $10 per hour, and specifies that the real wage will rise by 3 percent in the second year of the contract and by another 3 percent in the third year. The CPI is 1.00 in the first year, 1.07 in the second year, and 1.15 in the third year. What dollar wage must be paid in the third year?

Accepted Answer

A) $10.61 
B) $11.15 
C) $12.20 
D) $12.31 
A) $10.61 
B) $11.15 
C) $12.20 
D) $12.31

Question 8

If the price of motel rooms increases by 10 percent while the prices of other goods and services increase by 5 percent on average, the relative price of motel rooms has:

Accepted Answer

A) increased. 
B) decreased by 5 percent. 
C) decreased by 10 percent. 
D) remained constant. 
A) increased. 
B) decreased by 5 percent. 
C) decreased by 10 percent. 
D) remained constant.

Question 9

Suppose workers and employers agree to a three-year wage contract under the expectation of 3 percent inflation, but inflation turns out to be 1 percent. In this case, ________ lost purchasing power, and ________ gained purchasing power.

Accepted Answer

A) employers; workers 
B) no one; employers 
C) workers; employers 
D) employers; no one 
A) employers; workers 
B) no one; employers 
C) workers; employers 
D) employers; no one

Question 10

A labor contract provides for a first-year wage of $15 per hour, and specifies that the real wage will rise by 2 percent in the second year of the contract and by another 2 percent in the third year. The CPI is 1.00 in the first year, 1.09 in the second year, and 1.15 in the third year. What dollar wage must be paid in the third year?

Accepted Answer

A) $15.00 
B) $15.61 
C) $17.24 
D) $17.95 
A) $15.00 
B) $15.61 
C) $17.24 
D) $17.95

Question 11

The measure of the cost of a standard basket of goods and services in any period relative to the cost of the same basket of goods and services in the base year is called the:

Accepted Answer

A) consumption cost calculator. 
B) consumption production index. 
C) consumer production index. 
D) consumer price index. 
A) consumption cost calculator. 
B) consumption production index. 
C) consumer production index. 
D) consumer price index.

Question 12

The real interest rate is the:

Accepted Answer

A) market interest rate. 
B) annual percentage increase in the nominal value of a financial asset. 
C) annual percentage increase in the purchasing power of a financial asset. 
D) the interest rate charged on a loan in dollar terms. 
A) market interest rate. 
B) annual percentage increase in the nominal value of a financial asset. 
C) annual percentage increase in the purchasing power of a financial asset. 
D) the interest rate charged on a loan in dollar terms.

Question 13

Unexpectedly high inflation ________ borrowers and ________ lenders.

Accepted Answer

A) helps; hurts 
B) helps; helps 
C) hurts; hurts 
D) hurts; helps 
A) helps; hurts 
B) helps; helps 
C) hurts; hurts 
D) hurts; helps

Question 14

A nominal quantity is measured:

Accepted Answer

A) in physical terms. 
B) in terms of current dollar value. 
C) using the consumer price index. 
D) by indexing. 
A) in physical terms. 
B) in terms of current dollar value. 
C) using the consumer price index. 
D) by indexing.

Question 15

Two methods used to adjust nominal values for inflation are:

Accepted Answer

A) substituting and complementing. 
B) indexing and deflating. 
C) aggregating and disaggregating. 
D) real and nominal. 
A) substituting and complementing. 
B) indexing and deflating. 
C) aggregating and disaggregating. 
D) real and nominal.

Question 16

To prevent people paying a higher percentage of their income in taxes even when their real incomes have not changed, Congress:

Accepted Answer

A) implemented a flat tax. 
B) reduced the capital gains tax. 
C) indexed the income tax brackets to the CPI. 
D) deflated the income tax brackets to the CPI. 
A) implemented a flat tax. 
B) reduced the capital gains tax. 
C) indexed the income tax brackets to the CPI. 
D) deflated the income tax brackets to the CPI.

Question 17

If the CPI equaled 1.00 in 2005 and 1.65 in 2015 and a typical household's income equaled $35,000 in 1995 and $40,000 in 2005, then between 2005 and 2015, real household income:

Accepted Answer

A) increased. 
B) decreased. 
C) was constant. 
D) may have either increased or decreased. 
A) increased. 
B) decreased. 
C) was constant. 
D) may have either increased or decreased.

Question 18

The substitution bias in the CPI arises because the CPI:

Accepted Answer

A) is based on a fixed basket of goods and services. 
B) does not adequately allow for improvements in products. 
C) measures prices at two different times. 
D) understates the "true" rate of inflation. 
A) is based on a fixed basket of goods and services. 
B) does not adequately allow for improvements in products. 
C) measures prices at two different times. 
D) understates the "true" rate of inflation.

Question 19

If the real interest rate is 4 percent and the inflation rate is 9 percent, then the nominal interest rate equals:

Accepted Answer

A) 4 percent. 
B) 9 percent. 
C) 13 percent. 
D) 36 percent. 
A) 4 percent. 
B) 9 percent. 
C) 13 percent. 
D) 36 percent.

Question 20

A change in the average price level is called ________, while a change in the price of a specific good in comparison with other goods and services is called ________.

Accepted Answer

A) a quality adjustment; a substitution bias 
B) a change in a relative price; inflation 
C) inflation; a change in a relative price 
D) a price level adjustment; a quality adjustment 
A) a quality adjustment; a substitution bias 
B) a change in a relative price; inflation 
C) inflation; a change in a relative price 
D) a price level adjustment; a quality adjustment

Exam 18: Measuring the Price Level and Inflation

If workers received a 5 percent wage increase and the rate of inflation was 3 percent, then their real wage:

A measure of overall prices at a particular point in time is called:

If the consumer price index increased from 1.52 to 1.65, then it must be the case that ________ relative to prices in the base year.

An extremely high rate of inflation is called ________.

To correct a nominal quantity for changes in the price level, one should:

If the price of motel rooms increases by 10 percent while the prices of other goods and services increase by 5 percent on average, the relative price of motel rooms has:

Suppose workers and employers agree to a three-year wage contract under the expectation of 3 percent inflation, but inflation turns out to be 1 percent. In this case, ________ lost purchasing power, and ________ gained purchasing power.

The measure of the cost of a standard basket of goods and services in any period relative to the cost of the same basket of goods and services in the base year is called the:

The real interest rate is the:

Unexpectedly high inflation ________ borrowers and ________ lenders.

A nominal quantity is measured:

Two methods used to adjust nominal values for inflation are:

To prevent people paying a higher percentage of their income in taxes even when their real incomes have not changed, Congress:

If the CPI equaled 1.00 in 2005 and 1.65 in 2015 and a typical household's income equaled $35,000 in 1995 and $40,000 in 2005, then between 2005 and 2015, real household income:

The substitution bias in the CPI arises because the CPI:

If the real interest rate is 4 percent and the inflation rate is 9 percent, then the nominal interest rate equals:

A change in the average price level is called ________, while a change in the price of a specific good in comparison with other goods and services is called ________.

Thinking Like an Economist

Comparative Advantage

Supply and Demand

Elasticity

Demand

Perfectly Competitive Supply

Efficiency, Exchange, and the Invisible Hand in Action

Monopoly, Oligopoly, and Monopolistic Competition

Games and Strategic Behavior

An Introduction to Behavioral Economics

Externalities, Property Rights, and the Environment

The Economics of Information

Labor Markets, Poverty, and Income Distribution

Public Goods and Tax Policy

International Trade and Trade Policy

Macroeconomics: The Birds Eye View of the Economy

Measuring Economic Activity: GDP and Unemployment

Economic Growth, Productivity, and Living Standards

The Labor Market: Workers, Wages, and Unemployment

Saving and Capital Formation

Money Prices and the Federal Reserve

Financial Markets and International Capital Flows

Short-Term Economic Fluctuations: An Introduction

Spending and Output in the Short Run

Stabilizing the Economy: The Role of the Fed

Aggregate Demand, Aggregate Supply, and Inflation

Exchange Rates and the Open Economy

Filters

Suppose workers and employers agree to a three-year wage contract under the expectation of 3 percent inflation, but inflation turns out to be 1 percent. In this case, lost purchasing power, and gained purchasing power.

Unexpectedly high inflation borrowers and lenders.

A change in the average price level is called , while a change in the price of a specific good in comparison with other goods and services is called .