Question 1

According to the textbook,the fully completed house that one could buy from the Sears catalog in 1924 would be

Accepted Answer

A)  exorbitantly expensive by today's standards,adjusting for inflation. 
B)  about the typical price of a house today,adjusting for inflation. 
C)  of abnormally low quality and hence commanding a much lower price,even when adjusting for inflation. 
D)  quite a good deal,even when adjusting for inflation. 
E)  affordable to even the poorest Americans and would help to provide "sustainable growth." 
A)  exorbitantly expensive by today's standards,adjusting for inflation. 
B)  about the typical price of a house today,adjusting for inflation. 
C)  of abnormally low quality and hence commanding a much lower price,even when adjusting for inflation. 
D)  quite a good deal,even when adjusting for inflation. 
E)  affordable to even the poorest Americans and would help to provide "sustainable growth."

Question 2

Milton Friedman,who won the Nobel Prize in Economics,characterized inflation as being "high and variable." These characteristics of inflation create problems because

Accepted Answer

A)  of future price uncertainty. 
B)  of arbitrage. 
C)  of the signal emissions problem. 
D)  deflation could occur. 
E)  inflation always becomes hyperinflation. 
A)  of future price uncertainty. 
B)  of arbitrage. 
C)  of the signal emissions problem. 
D)  deflation could occur. 
E)  inflation always becomes hyperinflation.

Question 3

Oranges become more expensive in 2008 at Ukrop's in Charlottesville,Virginia.This means

Accepted Answer

A)  the consumer price index (CPI)will rise in 2008 if,and only if,Charlottesville is one of the 38 indexed geographic locations and oranges are one of the 8,000 goods included in the CPI. 
B)  the consumer price index (CPI)will almost certainly rise in 2008,even if Charlottesville is not included,as long as oranges are included and become more expensive on average at the other indexed locations. 
C)  the consumer price index (CPI)will likely fall if the average weighted price of oranges increases in the United States and the price of oranges at Ukrop's makes almost no difference in the CPI. 
D)  the consumer price index (CPI)might rise or fall and the price of oranges at Ukrop's could make a very small difference in the CPI if oranges at Ukrop's are included.However,oranges would be a relatively small portion of the entire CPI,if they are included in it at all. 
E)  orange prices are never included in the consumer price index (CPI)because the creator of the CPI,Milton Marquis,did not like oranges. 
A)  the consumer price index (CPI)will rise in 2008 if,and only if,Charlottesville is one of the 38 indexed geographic locations and oranges are one of the 8,000 goods included in the CPI. 
B)  the consumer price index (CPI)will almost certainly rise in 2008,even if Charlottesville is not included,as long as oranges are included and become more expensive on average at the other indexed locations. 
C)  the consumer price index (CPI)will likely fall if the average weighted price of oranges increases in the United States and the price of oranges at Ukrop's makes almost no difference in the CPI. 
D)  the consumer price index (CPI)might rise or fall and the price of oranges at Ukrop's could make a very small difference in the CPI if oranges at Ukrop's are included.However,oranges would be a relatively small portion of the entire CPI,if they are included in it at all. 
E)  orange prices are never included in the consumer price index (CPI)because the creator of the CPI,Milton Marquis,did not like oranges.

Question 4

In what two ways does the consumer price index (CPI)overestimate the rate of inflation?

Accepted Answer

The first way has to do with the fact th

Question 5

The equation M *V = P * Y

Accepted Answer

A)  has been confirmed by empirical data. 
B)  is true as a matter of definition. 
C)  is only approximately true in reality. 
D)  is a rule of thumb for guiding government policy. 
E)  is a controversial hypothesis. 
A)  has been confirmed by empirical data. 
B)  is true as a matter of definition. 
C)  is only approximately true in reality. 
D)  is a rule of thumb for guiding government policy. 
E)  is a controversial hypothesis.

Question 6

Usually in the United States and other advanced economies

Accepted Answer

A)  your real wage is more than your nominal wage. 
B)  your nominal wage is more than your real wage. 
C)  your real wage is the same as your nominal wage. 
D)  inflation increases the value of your real wage. 
E)  deflation usually occurs. 
A)  your real wage is more than your nominal wage. 
B)  your nominal wage is more than your real wage. 
C)  your real wage is the same as your nominal wage. 
D)  inflation increases the value of your real wage. 
E)  deflation usually occurs.

Question 7

The Bureau of Labor Statistics releases consumer price index (CPI)data

Accepted Answer

A)  hourly. 
B)  daily. 
C)  weekly. 
D)  monthly. 
E)  only when the typical basket of goods changes. 
A)  hourly. 
B)  daily. 
C)  weekly. 
D)  monthly. 
E)  only when the typical basket of goods changes.

Question 8

In the equation M * V =P *Y,the variable Y stands for

Accepted Answer

A)  the price level. 
B)  the size of the money supply. 
C)  the rate of inflation. 
D)  nominal GDP. 
E)  real GDP. 
A)  the price level. 
B)  the size of the money supply. 
C)  the rate of inflation. 
D)  nominal GDP. 
E)  real GDP.

Question 9

Joe Kowalski invents a new product,and this new product becomes cheaper over time.This can be problematic because

Accepted Answer

A)  the consumer price index (CPI)will include Joe's new product immediately if it is a consumer good,but as a consumer good,it will not be included in the gross domestic product (GDP)deflator. 
B)  the percent change in the consumer price index (CPI)will be distorted,but the change in the gross domestic product (GDP)deflator will not be,regardless of whether the product is a consumer good or a producer good. 
C)  it is unlikely the consumer price index (CPI)will include Joe's new product immediately,even if it is a consumer good. 
D)  money illusion will cause consumers to buy more of this good than the consumer price index (CPI)would otherwise reflect. 
E)  this good might be produced in a geographic location that is not included in the consumer price index (CPI). 
A)  the consumer price index (CPI)will include Joe's new product immediately if it is a consumer good,but as a consumer good,it will not be included in the gross domestic product (GDP)deflator. 
B)  the percent change in the consumer price index (CPI)will be distorted,but the change in the gross domestic product (GDP)deflator will not be,regardless of whether the product is a consumer good or a producer good. 
C)  it is unlikely the consumer price index (CPI)will include Joe's new product immediately,even if it is a consumer good. 
D)  money illusion will cause consumers to buy more of this good than the consumer price index (CPI)would otherwise reflect. 
E)  this good might be produced in a geographic location that is not included in the consumer price index (CPI).

Question 10

Deflation is best described as when

Accepted Answer

A)  all prices in the economy fall. 
B)  the prices of some goods rise and prices of some goods fall,but more goods have price increases than decreases. 
C)  the prices of some goods rise and prices of some goods fall,but fewer goods have price increases than decreases. 
D)  the overall level of prices of goods falls. 
E)  the overall level of prices of goods rises. 
A)  all prices in the economy fall. 
B)  the prices of some goods rise and prices of some goods fall,but more goods have price increases than decreases. 
C)  the prices of some goods rise and prices of some goods fall,but fewer goods have price increases than decreases. 
D)  the overall level of prices of goods falls. 
E)  the overall level of prices of goods rises.

Question 11

The signing of long-term wage and price agreements and the relationship to inflation most likely raises the issue of

Accepted Answer

A)  price confusion problems. 
B)  future price uncertainty. 
C)  money illusion. 
D)  consumer price index (CPI)heteroscedasticity. 
E)  deflationary tendencies. 
A)  price confusion problems. 
B)  future price uncertainty. 
C)  money illusion. 
D)  consumer price index (CPI)heteroscedasticity. 
E)  deflationary tendencies.

Question 12

What is the underlying concept behind future price level uncertainty?

Accepted Answer

Firms enter into contracts and incur cos

Question 13

Inflation in Zimbabwe in 2008

Accepted Answer

A)  was very low. 
B)  did not exist; during 2008 Zimbabwe had deflation. 
C)  was about the same as its neighbors,somewhere around 20 percent. 
D)  was very high at the beginning of the year but fell when Robert Mugabe agreed to share power with Morgan Tsvangarai. 
E)  reached the rate of 80 billion percent per month. 
A)  was very low. 
B)  did not exist; during 2008 Zimbabwe had deflation. 
C)  was about the same as its neighbors,somewhere around 20 percent. 
D)  was very high at the beginning of the year but fell when Robert Mugabe agreed to share power with Morgan Tsvangarai. 
E)  reached the rate of 80 billion percent per month.

Question 14

The price of a McDonald's hamburger in 1955 was $0.15 when the price index was 27; if in 2011 it was $0.89 when the price index was 220,then adjusted for inflation,the price of a McDonald's hamburger in 2011 was

Accepted Answer

A)  almost exactly the same (within 10 percent)as in 1955. 
B)  much higher (twice or more)than in 1955. 
C)  much lower (half or less)than in 1955. 
D)  a bit higher than in 1955. 
E)  a bit lower than in 1955. 
A)  almost exactly the same (within 10 percent)as in 1955. 
B)  much higher (twice or more)than in 1955. 
C)  much lower (half or less)than in 1955. 
D)  a bit higher than in 1955. 
E)  a bit lower than in 1955.

Question 15

Arguably there are three reasons why the consumer price index (CPI)overstates inflation.List the reasons and explain each one.

Accepted Answer

Substitution: Consumers do not buy the s

Question 16

If the price of industrial plastic injection molding machines rose by 20 percent and the price of oranges fell by 20 percent,then

Accepted Answer

A)  the consumer price index (CPI)would remain unchanged. 
B)  the consumer price index (CPI)would rise if oranges had a greater weight. 
C)  the consumer price index (CPI)would rise because plastic injection molding machines weigh more physically per unit. 
D)  the consumer price index (CPI)would fall because people buy more oranges than plastic injection molding machines. 
E)  all else equal,the consumer price index (CPI)would fall by the weighted value of oranges in the CPI,but because industrial plastic injection molding machines are not a consumer good,they would not affect the CPI. 
A)  the consumer price index (CPI)would remain unchanged. 
B)  the consumer price index (CPI)would rise if oranges had a greater weight. 
C)  the consumer price index (CPI)would rise because plastic injection molding machines weigh more physically per unit. 
D)  the consumer price index (CPI)would fall because people buy more oranges than plastic injection molding machines. 
E)  all else equal,the consumer price index (CPI)would fall by the weighted value of oranges in the CPI,but because industrial plastic injection molding machines are not a consumer good,they would not affect the CPI.

Question 17

The ratio (Price Level in Earlier Time)/ (Price Level Today)would be used to

Accepted Answer

A)  convert the consumer price index (CPI)to the gross domestic product (GDP)deflator. 
B)  convert today's price to an earlier price,adjusting for inflation. 
C)  find the percentage of substitution bias. 
D)  find the percentage of the quality change bias. 
E)  convert an earlier price to today's price,adjusting for inflation. 
A)  convert the consumer price index (CPI)to the gross domestic product (GDP)deflator. 
B)  convert today's price to an earlier price,adjusting for inflation. 
C)  find the percentage of substitution bias. 
D)  find the percentage of the quality change bias. 
E)  convert an earlier price to today's price,adjusting for inflation.

Question 18

What did Milton Friedman mean by saying that "inflation is always and everywhere a monetary phenomenon"?

Accepted Answer

A)  Inflation only affects those who hold money,as savings or in the form of investments. 
B)  Inflation is due to cash transactions,not transactions based on credit. 
C)  In any economy that uses money as a medium of exchange,there will always be some inflation. 
D)  Inflation is about rising prices,not about rising productivity. 
E)  Inflation is caused by an increase in the money supply relative to the quantity of goods and services. 
A)  Inflation only affects those who hold money,as savings or in the form of investments. 
B)  Inflation is due to cash transactions,not transactions based on credit. 
C)  In any economy that uses money as a medium of exchange,there will always be some inflation. 
D)  Inflation is about rising prices,not about rising productivity. 
E)  Inflation is caused by an increase in the money supply relative to the quantity of goods and services.

Question 19

Inflation occurs when

Accepted Answer

A)  all prices in the economy rise. 
B)  the prices of some goods rise and prices of some goods fall,but more goods have price increases than decreases. 
C)  the prices of some goods rise and prices of some goods fall,but fewer goods have price increases than decreases. 
D)  the overall level of prices rises. 
E)  all prices in the economy fall. 
A)  all prices in the economy rise. 
B)  the prices of some goods rise and prices of some goods fall,but more goods have price increases than decreases. 
C)  the prices of some goods rise and prices of some goods fall,but fewer goods have price increases than decreases. 
D)  the overall level of prices rises. 
E)  all prices in the economy fall.

Question 20

In Bovania,cattle compose 48 percent of the consumer price index (CPI),housing composes 32 percent,and entertainment accounts for the remaining 20 percent.If,in a certain year,the price of cattle rises by 30 percent and the price of housing rises by 25 percent,then

Accepted Answer

A)  the value of the CPI must rise,no matter what happens to the price of entertainment,because two-thirds of the CPI is more expensive. 
B)  the CPI has increased,as long as the price of entertainment does not fall by more than 55 percent. 
C)  the CPI has increased,even if the entertainment in the next year is free. 
D)  the CPI has decreased if the price of entertainment falls by more than 27.5 percent. 
E)  it is not possible to tell what would happen to the CPI because it is certain that the goods included in the CPI must change. 
A)  the value of the CPI must rise,no matter what happens to the price of entertainment,because two-thirds of the CPI is more expensive. 
B)  the CPI has increased,as long as the price of entertainment does not fall by more than 55 percent. 
C)  the CPI has increased,even if the entertainment in the next year is free. 
D)  the CPI has decreased if the price of entertainment falls by more than 27.5 percent. 
E)  it is not possible to tell what would happen to the CPI because it is certain that the goods included in the CPI must change.

Exam 21: The Price Level and Inflation

According to the textbook,the fully completed house that one could buy from the Sears catalog in 1924 would be

Milton Friedman,who won the Nobel Prize in Economics,characterized inflation as being "high and variable." These characteristics of inflation create problems because

Oranges become more expensive in 2008 at Ukrop's in Charlottesville,Virginia.This means

In what two ways does the consumer price index (CPI)overestimate the rate of inflation?

The equation M *V = P * Y

Usually in the United States and other advanced economies

The Bureau of Labor Statistics releases consumer price index (CPI)data

In the equation M * V =P *Y,the variable Y stands for

Joe Kowalski invents a new product,and this new product becomes cheaper over time.This can be problematic because

Deflation is best described as when

The signing of long-term wage and price agreements and the relationship to inflation most likely raises the issue of

What is the underlying concept behind future price level uncertainty?

Inflation in Zimbabwe in 2008

The price of a McDonald's hamburger in 1955 was $0.15 when the price index was 27; if in 2011 it was $0.89 when the price index was 220,then adjusted for inflation,the price of a McDonald's hamburger in 2011 was

Arguably there are three reasons why the consumer price index (CPI)overstates inflation.List the reasons and explain each one.

If the price of industrial plastic injection molding machines rose by 20 percent and the price of oranges fell by 20 percent,then

The ratio (Price Level in Earlier Time)/ (Price Level Today)would be used to

What did Milton Friedman mean by saying that "inflation is always and everywhere a monetary phenomenon"?

Inflation occurs when

In Bovania,cattle compose 48 percent of the consumer price index (CPI),housing composes 32 percent,and entertainment accounts for the remaining 20 percent.If,in a certain year,the price of cattle rises by 30 percent and the price of housing rises by 25 percent,then

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

The equation M V = P Y