Question 1

If housing prices increase by 25 percent and the price of all other goods decreases by 22 percent,then

Accepted Answer

A)  the consumer price index (CPI)would definitely fall during the year in question because housing prices do not constitute the majority of the CPI. 
B)  the consumer price index (CPI)would definitely rise during the year in question because housing prices do constitute the majority of the CPI. 
C)  the consumer price index (CPI)would rise by about 1.5 percent because housing constitutes about half of the market basket in the CPI. 
D)  because housing spending is considered an investment,the producer price index (PPI)but not the consumer price index (CPI)would be the only price index affected by the change. 
E)  the consumer price index (CPI)would only be affected in a small way because it includes about 8,000 goods and housing is only one of the 8,000. 
A)  the consumer price index (CPI)would definitely fall during the year in question because housing prices do not constitute the majority of the CPI. 
B)  the consumer price index (CPI)would definitely rise during the year in question because housing prices do constitute the majority of the CPI. 
C)  the consumer price index (CPI)would rise by about 1.5 percent because housing constitutes about half of the market basket in the CPI. 
D)  because housing spending is considered an investment,the producer price index (PPI)but not the consumer price index (CPI)would be the only price index affected by the change. 
E)  the consumer price index (CPI)would only be affected in a small way because it includes about 8,000 goods and housing is only one of the 8,000. A

Question 2

Inflation can create uncertainty by making

Accepted Answer

A)  the real value of past payments uncertain. 
B)  the nominal value of past payments uncertain. 
C)  the real value of future payments uncertain. 
D)  the nominal value of future payments uncertain. 
E)  wages unstable. 
A)  the real value of past payments uncertain. 
B)  the nominal value of past payments uncertain. 
C)  the real value of future payments uncertain. 
D)  the nominal value of future payments uncertain. 
E)  wages unstable. C

Question 3

You are offered two jobs,one in Chicago paying $67,000 and one in Philadelphia paying $79,000.The price index in Chicago is 110.8,and in Philadelphia it is 126.5.If real wages are the only consideration,then

Accepted Answer

A)  you would be indifferent between the two jobs because the real wages would be about the same (within 2 percent). 
B)  you would definitely take the job in Chicago because the real wage is higher there. 
C)  you would definitely take the job in Philadelphia because the real wage is higher there. 
D)  you would suffer from money illusion and be conflicted. 
E)  because there is a direct correlation between the real wage and the nominal wage,the job in Philadelphia is definitely the one to take. 
A)  you would be indifferent between the two jobs because the real wages would be about the same (within 2 percent). 
B)  you would definitely take the job in Chicago because the real wage is higher there. 
C)  you would definitely take the job in Philadelphia because the real wage is higher there. 
D)  you would suffer from money illusion and be conflicted. 
E)  because there is a direct correlation between the real wage and the nominal wage,the job in Philadelphia is definitely the one to take. C

Question 4

You get a pay raise and feel richer even though your raise did not keep up with inflation; this is best described as

Accepted Answer

A)  menu costs. 
B)  price confusion. 
C)  future price uncertainty. 
D)  money illusion. 
E)  nominal income uncertainty. 
A)  menu costs. 
B)  price confusion. 
C)  future price uncertainty. 
D)  money illusion. 
E)  nominal income uncertainty.

Question 5

You are offered two jobs,one in Chicago paying $67,000 and one in Dallas paying $58,000.The price index in Chicago is 110.8,and in Dallas it is 91.5.If real wages are the only consideration,then you would

Accepted Answer

A)  be indifferent between the two jobs because the real wages would be about the same (within 2 percent). 
B)  definitely take the job in Chicago because the real wage is higher there. 
C)  definitely take the job in Dallas because the real wage is higher there. 
D)  suffer from money illusion and be conflicted. 
E)  suffer from menu costs and be conflicted. 
A)  be indifferent between the two jobs because the real wages would be about the same (within 2 percent). 
B)  definitely take the job in Chicago because the real wage is higher there. 
C)  definitely take the job in Dallas because the real wage is higher there. 
D)  suffer from money illusion and be conflicted. 
E)  suffer from menu costs and be conflicted.

Question 6

Consider a nation in which the price index last year was 130 and this year it is 150.Which statement is correct?

Accepted Answer

A)  Inflation was 20 percent this year. 
B)  Deflation was 20 percent this year. 
C)  Housing prices must have risen. 
D)  Inflation was 15 percent this year. 
E)  Deflation was 15 percent this year. 
A)  Inflation was 20 percent this year. 
B)  Deflation was 20 percent this year. 
C)  Housing prices must have risen. 
D)  Inflation was 15 percent this year. 
E)  Deflation was 15 percent this year.

Question 7

Wanda owns a store and has not had to raise prices recently-and now her store has more customers.Which statement is correct?

Accepted Answer

A)  This can be troublesome because she faces a "menu costs" problem because she must not have increased prices fast enough. 
B)  This can be troublesome because she faces a price confusion problem: she doesn't know if the extra business means that she should open another store,or if the crowds are a result of inflation,which has caused all consumers to buy at a faster rate. 
C)  This can be troublesome because she faces a future price uncertainty problem because she doesn't know how much to increase her prices now or in the future. 
D)  It can't be troublesome; it can only be good. 
E)  This can be troublesome because too many customers generate deflationary pressures for all businesses. 
A)  This can be troublesome because she faces a "menu costs" problem because she must not have increased prices fast enough. 
B)  This can be troublesome because she faces a price confusion problem: she doesn't know if the extra business means that she should open another store,or if the crowds are a result of inflation,which has caused all consumers to buy at a faster rate. 
C)  This can be troublesome because she faces a future price uncertainty problem because she doesn't know how much to increase her prices now or in the future. 
D)  It can't be troublesome; it can only be good. 
E)  This can be troublesome because too many customers generate deflationary pressures for all businesses.

Question 8

Refer to the following figure to answer the following questions:  
-Based on the figure,one could correctly state that

Accepted Answer

A)  although U.S.inflation was generally higher in the 1970s and 1980s,that situation was reversed in the later years for the European Union. 
B)  inflation in both the United States and the European Union was higher in the 1990s than it was in the 1970s and 1980s. 
C)  deflation was a problem in the United States and the European Union in the 1990s,but inflation was a problem for both in the 1970s and 1980s. 
D)  U.S.and E.U.inflation both tended to be higher in the 1970s and 1980s than in the 1990s. 
E)  typically,while the European Union had inflation problems,the United States had deflation problems. 
A)  although U.S.inflation was generally higher in the 1970s and 1980s,that situation was reversed in the later years for the European Union. 
B)  inflation in both the United States and the European Union was higher in the 1990s than it was in the 1970s and 1980s. 
C)  deflation was a problem in the United States and the European Union in the 1990s,but inflation was a problem for both in the 1970s and 1980s. 
D)  U.S.and E.U.inflation both tended to be higher in the 1970s and 1980s than in the 1990s. 
E)  typically,while the European Union had inflation problems,the United States had deflation problems.

Question 9

Refer to the following table to answer the following questions:  
-As presented in the table,the approximate rate of inflation (or deflation)during 2000-2001 was (rounded to the nearest percent)

Accepted Answer

A)  7 percent. 
B)  105 percent. 
C)  87 percent. 
D)  21 percent. 
E)  17 percent. 
A)  7 percent. 
B)  105 percent. 
C)  87 percent. 
D)  21 percent. 
E)  17 percent.

Question 10

Your nominal wage increases by 10 percent,and the overall price level increases by 12 percent.Which statement is correct?

Accepted Answer

A)  If you feel richer,you are experiencing money illusion. 
B)  You face a price confusion problem. 
C)  You face a menu costs problem. 
D)  You would be certain that your real wage had increased. 
E)  Bureau of Labor Statistics factors would cause you to experience deflation. 
A)  If you feel richer,you are experiencing money illusion. 
B)  You face a price confusion problem. 
C)  You face a menu costs problem. 
D)  You would be certain that your real wage had increased. 
E)  Bureau of Labor Statistics factors would cause you to experience deflation.

Question 11

If 51 percent of all goods in the consumer price index (CPI)became more expensive and 49 percent became cheaper

Accepted Answer

A)  inflation would certainly occur. 
B)  deflation would most likely occur. 
C)  inflation or deflation could occur,depending on the weight of these goods in the basket of goods and the actual percentage changes. 
D)  deflation would certainly occur if the price of housing was one of the goods that fell. 
E)  inflation would occur if the goods whose prices increased did so by the same percentage as the goods whose prices decreased. 
A)  inflation would certainly occur. 
B)  deflation would most likely occur. 
C)  inflation or deflation could occur,depending on the weight of these goods in the basket of goods and the actual percentage changes. 
D)  deflation would certainly occur if the price of housing was one of the goods that fell. 
E)  inflation would occur if the goods whose prices increased did so by the same percentage as the goods whose prices decreased.

Question 12

Explain the distorting effect of inflation on the payment of capital gains taxes.

Accepted Answer

Inflation can create the appearance of c

Question 13

Inflation sometimes causes people to pay ________ capital gains tax than they ought to,________.

Accepted Answer

A)  less; because tax laws do not typically account for inflation 
B)  less; because inflation creates the opportunity for a tax write-off 
C)  more; if they neglect to claim the inflation adjustment that tax laws allow 
D)  more; because the inflation adjustments in tax laws overcompensate for inflation 
E)  more; if much of their calculated profits from selling assets was due to inflation 
A)  less; because tax laws do not typically account for inflation 
B)  less; because inflation creates the opportunity for a tax write-off 
C)  more; if they neglect to claim the inflation adjustment that tax laws allow 
D)  more; because the inflation adjustments in tax laws overcompensate for inflation 
E)  more; if much of their calculated profits from selling assets was due to inflation

Question 14

In terms of inflation,the period from the mid-1980s until today in the United States is called the "Great Moderation." This refers to the fact that

Accepted Answer

A)  the hyperinflation rates of 100 percent or more experienced during the 1960s,1970s,and 1980s have been replaced by moderate rates of inflation averaging about 12 percent. 
B)  the inflation of the 1960s,1970s,and early 1980s has been replaced by deflation. 
C)  the deflation of the 1960s,1970s,and early 1980s has been replaced by moderate inflation (under 10 percent). 
D)  the double-digit inflation of the 1970s and 1980s has been replaced by well-controlled inflation of less than 10 percent. 
E)  inflation now fluctuates between 0 percent and 20 percent,whereas in the 1970s and 1980s,it fluctuated more wildly and at higher rates. 
A)  the hyperinflation rates of 100 percent or more experienced during the 1960s,1970s,and 1980s have been replaced by moderate rates of inflation averaging about 12 percent. 
B)  the inflation of the 1960s,1970s,and early 1980s has been replaced by deflation. 
C)  the deflation of the 1960s,1970s,and early 1980s has been replaced by moderate inflation (under 10 percent). 
D)  the double-digit inflation of the 1970s and 1980s has been replaced by well-controlled inflation of less than 10 percent. 
E)  inflation now fluctuates between 0 percent and 20 percent,whereas in the 1970s and 1980s,it fluctuated more wildly and at higher rates.

Question 15

Refer to the following figure to answer the following questions:  
-As presented in the figure,one could correctly state that during the period shown

Accepted Answer

A)  the United States and the European Union generally experienced periods of both inflation and deflation. 
B)  generally,the United States experienced deflation,but the European Union experienced inflation. 
C)  generally,the European Union experienced more deflation than the United States did. 
D)  there was never a time when either the United States or the European Union experienced deflation. 
E)  there were brief periods of hyperinflation for both the United States and European Union in the 1970s and early 1980s. 
A)  the United States and the European Union generally experienced periods of both inflation and deflation. 
B)  generally,the United States experienced deflation,but the European Union experienced inflation. 
C)  generally,the European Union experienced more deflation than the United States did. 
D)  there was never a time when either the United States or the European Union experienced deflation. 
E)  there were brief periods of hyperinflation for both the United States and European Union in the 1970s and early 1980s.

Question 16

Assume tuition and fees at North Carolina State University cost $4,259 in 2004 and $7,787 in 2012.If the price index was 184 in 2004 and 226 in 2012,then we could say

Accepted Answer

A)  tuition has increased more slowly than inflation. 
B)  tuition has increased more rapidly than inflation. 
C)  tuition has increased at about the same rate as inflation. 
D)  nominal tuition has decreased. 
E)  tuition suffers from money illusion due to inflation. 
A)  tuition has increased more slowly than inflation. 
B)  tuition has increased more rapidly than inflation. 
C)  tuition has increased at about the same rate as inflation. 
D)  nominal tuition has decreased. 
E)  tuition suffers from money illusion due to inflation.

Question 17

Refer to the following figure when answering the following questions:  
-In the figure,which of the following changes in the consumer price index (CPI)of Brazil would most closely reflect what is depicted during the 2003-2004 time period?

Accepted Answer

A)  January 2003: 100; July 2003: 118; July 2004: 120 
B)  January 2003: 100; July 2003: 108; July 2004: 118 
C)  January 2003: 100; July 2003: 118; July 2004: 200 
D)  January 2003: 100; July 2003: 110; July 2004: 112 
E)  January 2003: 100; July 2003: 116; July 2004: 106 
A)  January 2003: 100; July 2003: 118; July 2004: 120 
B)  January 2003: 100; July 2003: 108; July 2004: 118 
C)  January 2003: 100; July 2003: 118; July 2004: 200 
D)  January 2003: 100; July 2003: 110; July 2004: 112 
E)  January 2003: 100; July 2003: 116; July 2004: 106

Question 18

The consumer price index (CPI)and the gross domestic product (GDP)deflator are both measures of inflation.Explain the difference between them.

Accepted Answer

The CPI tracks the prices of a "basket"

Question 19

Suppose a government prints a large quantity of money to pay its debts to domestic creditors,and yet prices do not subsequently rise.Use the equation %$\Delta$M + %$\Delta$V $\approx$ %$\Delta$P + %$\Delta$Y to describe what may have happened.

Accepted Answer

Since %@#LAT-DLM&M is known to be positive and %@#LAT-DLM&P

Question 20

Using the table below,compute the consumer price index (CPI)in 2007 using 2006 as the base year.Show all your work.

Accepted Answer

@#IMG-DLM& CPI = [89

Exam 21: The Price Level and Inflation

If housing prices increase by 25 percent and the price of all other goods decreases by 22 percent,then

Inflation can create uncertainty by making

You are offered two jobs,one in Chicago paying $67,000 and one in Philadelphia paying $79,000.The price index in Chicago is 110.8,and in Philadelphia it is 126.5.If real wages are the only consideration,then

You get a pay raise and feel richer even though your raise did not keep up with inflation; this is best described as

You are offered two jobs,one in Chicago paying $67,000 and one in Dallas paying $58,000.The price index in Chicago is 110.8,and in Dallas it is 91.5.If real wages are the only consideration,then you would

Consider a nation in which the price index last year was 130 and this year it is 150.Which statement is correct?

Wanda owns a store and has not had to raise prices recently-and now her store has more customers.Which statement is correct?

Refer to the following figure to answer the following questions: -Based on the figure,one could correctly state that

Refer to the following table to answer the following questions: -As presented in the table,the approximate rate of inflation (or deflation)during 2000-2001 was (rounded to the nearest percent)

Your nominal wage increases by 10 percent,and the overall price level increases by 12 percent.Which statement is correct?

If 51 percent of all goods in the consumer price index (CPI)became more expensive and 49 percent became cheaper

Explain the distorting effect of inflation on the payment of capital gains taxes.

Inflation sometimes causes people to pay ________ capital gains tax than they ought to,________.

In terms of inflation,the period from the mid-1980s until today in the United States is called the "Great Moderation." This refers to the fact that

Refer to the following figure to answer the following questions: -As presented in the figure,one could correctly state that during the period shown

Assume tuition and fees at North Carolina State University cost $4,259 in 2004 and $7,787 in 2012.If the price index was 184 in 2004 and 226 in 2012,then we could say

Refer to the following figure when answering the following questions: -In the figure,which of the following changes in the consumer price index (CPI)of Brazil would most closely reflect what is depicted during the 2003-2004 time period?

The consumer price index (CPI)and the gross domestic product (GDP)deflator are both measures of inflation.Explain the difference between them.

Suppose a government prints a large quantity of money to pay its debts to domestic creditors,and yet prices do not subsequently rise.Use the equation % Δ\DeltaΔ M + % Δ\DeltaΔ V ≈\approx≈ % Δ\DeltaΔ P + % Δ\DeltaΔ Y to describe what may have happened.

Using the table below,compute the consumer price index (CPI)in 2007 using 2006 as the base year.Show all your work.

Five Foundations of Economics

Model Building and Gains From Trade

The Market at Work: Supply and Demand

Elasticity

Market Outcomes and Tax Incidence

Price Controls

Market Inefficiencies: Externalities and Public Goods

Business Costs and Production

Firms in a Competitive Market

Understanding Monopoly

Price Discrimination

Monopolistic Competition and Advertising

Oligopoly and Strategic Behavior

The Demand and Supply of Resources

Income,inequality,and Poverty

Consumer Choice

Behavioral Economics and Risk Taking

Health Insurance and Health Care

Introduction to Macroeconomics and Gross Domestic Product

Unemployment

Savings,interest Rates,and the Market for Loanable Funds

Financial Markets and Securities

Economic Growth and the Wealth of Nations

Growth Theory

The Aggregate Demandaggregate Supply Model

The Great Recession, the Great Depression, and Great Macroeconomic Debates

Federal Budgets: the Tools of Fiscal Policy

Fiscal Policy

Money and the Federal Reserve

Monetary Policy

International Trade

International Finance

Filters

Inflation sometimes causes people to pay capital gains tax than they ought to,.

Suppose a government prints a large quantity of money to pay its debts to domestic creditors,and yet prices do not subsequently rise.Use the equation % $\Delta$ M + % $\Delta$ V $\approx$ % $\Delta$ P + % $\Delta$ Y to describe what may have happened.