Question 1

In the 1970s,the government attempted to regulate prices to control inflation; this attempt was unsuccessful.The most likely reason was that

Accepted Answer

A)  it increased menu costs. 
B)  it created future price certainty. 
C)  it removed relative price signals for those items that had actual increases in demand that were not due to inflation. 
D)  it created money illusion. 
E)  the Watergate break-in destroyed Americans' faith in the government. 
A)  it increased menu costs. 
B)  it created future price certainty. 
C)  it removed relative price signals for those items that had actual increases in demand that were not due to inflation. 
D)  it created money illusion. 
E)  the Watergate break-in destroyed Americans' faith in the government.

Question 2

Assume tuition at the University of Virginia cost $2,962 (per semester)in 2004 and $11,584 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 much more rapidly than inflation. 
C)  tuition has increased at about the same rate as inflation. 
D)  nominal tuition has decreased. 
E)  tuition suffers from menu costs due to inflation. 
A)  tuition has increased more slowly than inflation. 
B)  tuition has increased much more rapidly than inflation. 
C)  tuition has increased at about the same rate as inflation. 
D)  nominal tuition has decreased. 
E)  tuition suffers from menu costs due to inflation.

Question 3

To convert a current price of a product to its price in the past,we would take the current price of a product and

Accepted Answer

A)  divide by the current price index and then add the previous price index. 
B)  multiply by the ratio of the current price index to the previous price index. 
C)  multiply by the ratio of the previous price index to the current price index. 
D)  divide by the ratio of the previous price index to the current price index. 
E)  average the chain-weighted consumer price index (CPI)and the traditional CPI of the previous year,and then multiply the current price by the average of the two. 
A)  divide by the current price index and then add the previous price index. 
B)  multiply by the ratio of the current price index to the previous price index. 
C)  multiply by the ratio of the previous price index to the current price index. 
D)  divide by the ratio of the previous price index to the current price index. 
E)  average the chain-weighted consumer price index (CPI)and the traditional CPI of the previous year,and then multiply the current price by the average of the two.

Question 4

Suppose a basket of goods and services has been selected to calculate the consumer price index (CPI)and 2002 has been chosen as the base year.In 2002,the basket's cost was $76.00; in 2004,the basket's cost was $79.50; and in 2006,the basket's cost was $85.00.The value of the CPI was

Accepted Answer

A)  100 in 2002. 
B)  108 in 2004. 
C)  120 in 2006. 
D)  at least 118 in 2007. 
E)  no more than 90 in 2001. 
A)  100 in 2002. 
B)  108 in 2004. 
C)  120 in 2006. 
D)  at least 118 in 2007. 
E)  no more than 90 in 2001.

Question 5

If everyone buys the same goods every year and the price of housing rises by 38 percent,it is

Accepted Answer

A)  certain the consumer price index (CPI)has increased,and if your nominal wage has risen by less than 38 percent,your real wage has fallen. 
B)  certain the consumer price index (CPI)has increased,and if your nominal wage has risen by more than 38 percent,your real wage has risen. 
C)  possible that the consumer price index (CPI)has increased,but it is certain your real wage has fallen. 
D)  possible that the consumer price index (CPI)has increased; however,it is certain your real wage has risen if,and only if,your nominal wage increased by more than 19 percent because housing accounts for exactly 50 percent of the CPI. 
E)  not possible to tell what happened to the consumer price index (CPI)because other than for housing,we do not know what happened to the prices of any of the other goods. 
A)  certain the consumer price index (CPI)has increased,and if your nominal wage has risen by less than 38 percent,your real wage has fallen. 
B)  certain the consumer price index (CPI)has increased,and if your nominal wage has risen by more than 38 percent,your real wage has risen. 
C)  possible that the consumer price index (CPI)has increased,but it is certain your real wage has fallen. 
D)  possible that the consumer price index (CPI)has increased; however,it is certain your real wage has risen if,and only if,your nominal wage increased by more than 19 percent because housing accounts for exactly 50 percent of the CPI. 
E)  not possible to tell what happened to the consumer price index (CPI)because other than for housing,we do not know what happened to the prices of any of the other goods.

Question 6

In Bovania,milk constitutes 56 percent of the typical basket of goods for a typical consumer.Let's say the price of milk rises by 7 percent and the prices of all other goods fall by 4 percent.Based on the information given,we can definitely say

Accepted Answer

A)  the consumer price index (CPI)in Bovania is greater than in the previous year. 
B)  the consumer price index (CPI)in Bovania is less than in the previous year. 
C)  if consumers get a 4 percent pay raise,they are worse off in terms of their real income compared to inflation as measured by the Bovanian consumer price index (CPI). 
D)  the gross domestic product (GDP)deflator must be higher than the consumer price index (CPI). 
E)  the gross domestic product (GDP)deflator must be less than the consumer price index (CPI). 
A)  the consumer price index (CPI)in Bovania is greater than in the previous year. 
B)  the consumer price index (CPI)in Bovania is less than in the previous year. 
C)  if consumers get a 4 percent pay raise,they are worse off in terms of their real income compared to inflation as measured by the Bovanian consumer price index (CPI). 
D)  the gross domestic product (GDP)deflator must be higher than the consumer price index (CPI). 
E)  the gross domestic product (GDP)deflator must be less than the consumer price index (CPI).

Question 7

Typically if real wages fall,the quantity demanded of labor rises.If workers agree to 3 percent wage increases for a four-year period and inflation is more than 3 percent,then,based on this information alone,

Accepted Answer

A)  workers will have higher real wages because they get paid more. 
B)  the quantity demanded of labor will increase,because real wages fell. 
C)  workers must experience money illusion. 
D)  the quantity demanded of labor will fall. 
E)  the demand,but not the quantity demanded,for labor will fall. 
A)  workers will have higher real wages because they get paid more. 
B)  the quantity demanded of labor will increase,because real wages fell. 
C)  workers must experience money illusion. 
D)  the quantity demanded of labor will fall. 
E)  the demand,but not the quantity demanded,for labor will fall.

Question 8

What is the underlying concept behind the price confusion problem?

Accepted Answer

During a time of inflation,people spend

Question 9

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

Accepted Answer

A)  median rate of inflation. 
B)  movement of goods. 
C)  movement of prices. 
D)  quantity of money. 
E)  velocity of money. 
A)  median rate of inflation. 
B)  movement of goods. 
C)  movement of prices. 
D)  quantity of money. 
E)  velocity of money.

Question 10

What is the Billion Prices Project? Explain the motivation behind it and its limitations.

Accepted Answer

The Billion Prices Project is an effort

Question 11

In a particular nation,people buy a completely unique and different set of goods and services every year.None of the goods purchased in the new year are the same as any of the goods purchased in the previous year.Based on this information

Accepted Answer

A)  we would know the nation is experiencing inflation. 
B)  we would know the nation is experiencing deflation. 
C)  the consumer price index (CPI)would be meaningless in this nation. 
D)  this nation faces a price confusion problem. 
E)  the relative price of all goods would determine the consumer price index (CPI). 
A)  we would know the nation is experiencing inflation. 
B)  we would know the nation is experiencing deflation. 
C)  the consumer price index (CPI)would be meaningless in this nation. 
D)  this nation faces a price confusion problem. 
E)  the relative price of all goods would determine the consumer price index (CPI).

Question 12

In which direction does a surge of inflation redistribute wealth?

Accepted Answer

A)  from private corporations to the government 
B)  from lenders to borrowers 
C)  from the rich to the poor 
D)  from consumers to producers 
E)  from workers to managers 
A)  from private corporations to the government 
B)  from lenders to borrowers 
C)  from the rich to the poor 
D)  from consumers to producers 
E)  from workers to managers

Question 13

A price confusion problem is best described as the

Accepted Answer

A)  difficulty producers have in determining whether higher prices are due to increased demand or inflation. 
B)  difficulty consumers have in determining whether real prices have risen in order to decide whether they should buy more or less. 
C)  difficulty that producers have in determining whether a wage increase will lead to an increase in real costs. 
D)  problem consumers have in determining whether relative prices have changed when all prices are increasing,albeit at different rates. 
E)  problem both consumers and producers face in interpreting consumer price index (CPI)data from the Bureau of Labor Statistics. 
A)  difficulty producers have in determining whether higher prices are due to increased demand or inflation. 
B)  difficulty consumers have in determining whether real prices have risen in order to decide whether they should buy more or less. 
C)  difficulty that producers have in determining whether a wage increase will lead to an increase in real costs. 
D)  problem consumers have in determining whether relative prices have changed when all prices are increasing,albeit at different rates. 
E)  problem both consumers and producers face in interpreting consumer price index (CPI)data from the Bureau of Labor Statistics.

Question 14

In Country Z,the prices of goods are measured on an annual basis on the last day of the year.In Country Y,the prices of goods are measured on a weekly basis every Wednesday.Comparing the two countries based on this information,

Accepted Answer

A)  Country Y more accurately combats the upward bias of its price index by using a chained index. 
B)  Country Z more accurately combats the upward bias of its price index by using a chained index. 
C)  Country Z will experience hyperinflation. 
D)  Country Y will experience hyperinflation. 
E)  neither country has a very good price index if consumer purchasing habits change; a chained index usually outperforms a traditional index. 
A)  Country Y more accurately combats the upward bias of its price index by using a chained index. 
B)  Country Z more accurately combats the upward bias of its price index by using a chained index. 
C)  Country Z will experience hyperinflation. 
D)  Country Y will experience hyperinflation. 
E)  neither country has a very good price index if consumer purchasing habits change; a chained index usually outperforms a traditional index.

Question 15

The chained consumer price index (CPI)is a better measure of prices than the traditional CPI because

Accepted Answer

A)  it contains producer prices,not just consumer prices. 
B)  it adjusts for price changes less frequently but across more goods. 
C)  it adjusts for price changes more often,especially when new goods are introduced,which is important because new products' prices tend to fall soon after introduction. 
D)  the chained index is called "chained" because it includes industrial goods that are not included in the traditional CPI. 
E)  while omitting producer prices,it includes substitution between goods as relative prices change. 
A)  it contains producer prices,not just consumer prices. 
B)  it adjusts for price changes less frequently but across more goods. 
C)  it adjusts for price changes more often,especially when new goods are introduced,which is important because new products' prices tend to fall soon after introduction. 
D)  the chained index is called "chained" because it includes industrial goods that are not included in the traditional CPI. 
E)  while omitting producer prices,it includes substitution between goods as relative prices change.

Question 16

It has been shown that increases in the money supply are directly related to the rate of inflation.If the previous statement is true,then

Accepted Answer

A)  nations that increase their money supplies most rapidly will be the most prosperous. 
B)  hyperinflation will normally be associated with large increases in the money supply. 
C)  hyperinflation will normally be associated with large decreases in the money supply. 
D)  menu costs will rise when the money supply falls. 
E)  real wages rise whenever the money supply increases. 
A)  nations that increase their money supplies most rapidly will be the most prosperous. 
B)  hyperinflation will normally be associated with large increases in the money supply. 
C)  hyperinflation will normally be associated with large decreases in the money supply. 
D)  menu costs will rise when the money supply falls. 
E)  real wages rise whenever the money supply increases.

Question 17

Your firm expands its output in a time when demand appears to be increasing.Demand for all goods is increasing because of inflation,and consumers want to buy all goods faster because their real purchasing power is falling due to inflation.This situation could indicate that your firm experienced

Accepted Answer

A)  future price uncertainty. 
B)  menu costs. 
C)  money illusion. 
D)  deflation. 
E)  a price confusion problem. 
A)  future price uncertainty. 
B)  menu costs. 
C)  money illusion. 
D)  deflation. 
E)  a price confusion problem.

Question 18

Assume tuition at Penn State cost $6,142 (per semester)in 2007 and $7,562 in 2012.If the price index was 207.34 in 2007 and 226 in 2012,then we could say tuition

Accepted Answer

A)  has increased more slowly than inflation. 
B)  has increased more rapidly than inflation. 
C)  has increased at about the same rate as inflation. 
D)  is an inferior good. 
E)  suffers from menu costs due to inflation. 
A)  has increased more slowly than inflation. 
B)  has increased more rapidly than inflation. 
C)  has increased at about the same rate as inflation. 
D)  is an inferior good. 
E)  suffers from menu costs due to inflation.

Question 19

The housing crisis has some roots in inflation because

Accepted Answer

A)  new houses were new goods and services and the consumer price index (CPI)didn't measure them. 
B)  builders confused inflation with an increase in demand and hence overbuilt,which was a price confusion problem. 
C)  there were menu costs associated with higher housing prices. 
D)  money illusion occurred when builders thought that real prices were rising. 
E)  money illusion occurred when housing buyers thought real wages were rising. 
A)  new houses were new goods and services and the consumer price index (CPI)didn't measure them. 
B)  builders confused inflation with an increase in demand and hence overbuilt,which was a price confusion problem. 
C)  there were menu costs associated with higher housing prices. 
D)  money illusion occurred when builders thought that real prices were rising. 
E)  money illusion occurred when housing buyers thought real wages were rising.

Question 20

By definition,the velocity of money is the

Accepted Answer

A)  number of times per year a unit of money changes hands. 
B)  difference between this year's inflation rate and last year's. 
C)  rate at which the money supply is growing. 
D)  number of individual commercial transactions occurring each year. 
E)  inverse of the time the average commercial transaction takes. 
A)  number of times per year a unit of money changes hands. 
B)  difference between this year's inflation rate and last year's. 
C)  rate at which the money supply is growing. 
D)  number of individual commercial transactions occurring each year. 
E)  inverse of the time the average commercial transaction takes.

Exam 21: The Price Level and Inflation

In the 1970s,the government attempted to regulate prices to control inflation; this attempt was unsuccessful.The most likely reason was that

Assume tuition at the University of Virginia cost $2,962 (per semester)in 2004 and $11,584 in 2012.If the price index was 184 in 2004 and 226 in 2012,then we could say

To convert a current price of a product to its price in the past,we would take the current price of a product and

Suppose a basket of goods and services has been selected to calculate the consumer price index (CPI)and 2002 has been chosen as the base year.In 2002,the basket's cost was $76.00; in 2004,the basket's cost was $79.50; and in 2006,the basket's cost was $85.00.The value of the CPI was

If everyone buys the same goods every year and the price of housing rises by 38 percent,it is

In Bovania,milk constitutes 56 percent of the typical basket of goods for a typical consumer.Let's say the price of milk rises by 7 percent and the prices of all other goods fall by 4 percent.Based on the information given,we can definitely say

Typically if real wages fall,the quantity demanded of labor rises.If workers agree to 3 percent wage increases for a four-year period and inflation is more than 3 percent,then,based on this information alone,

What is the underlying concept behind the price confusion problem?

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

What is the Billion Prices Project? Explain the motivation behind it and its limitations.

In a particular nation,people buy a completely unique and different set of goods and services every year.None of the goods purchased in the new year are the same as any of the goods purchased in the previous year.Based on this information

In which direction does a surge of inflation redistribute wealth?

A price confusion problem is best described as the

In Country Z,the prices of goods are measured on an annual basis on the last day of the year.In Country Y,the prices of goods are measured on a weekly basis every Wednesday.Comparing the two countries based on this information,

The chained consumer price index (CPI)is a better measure of prices than the traditional CPI because

It has been shown that increases in the money supply are directly related to the rate of inflation.If the previous statement is true,then

Your firm expands its output in a time when demand appears to be increasing.Demand for all goods is increasing because of inflation,and consumers want to buy all goods faster because their real purchasing power is falling due to inflation.This situation could indicate that your firm experienced

Assume tuition at Penn State cost $6,142 (per semester)in 2007 and $7,562 in 2012.If the price index was 207.34 in 2007 and 226 in 2012,then we could say tuition

The housing crisis has some roots in inflation because

By definition,the velocity of money is the

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

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