Question 1

Refer to the following figure when answering the following questions:  
-According to the figure,deflation was occurring

Accepted Answer

A)  between 2003 and 2004. 
B)  from 1996 until 1999. 
C)  from 1996 through 1999 and between 2003 and 2004. 
D)  in none of the years shown. 
E)  in all of the years shown. 
A)  between 2003 and 2004. 
B)  from 1996 until 1999. 
C)  from 1996 through 1999 and between 2003 and 2004. 
D)  in none of the years shown. 
E)  in all of the years shown.

Question 2

According to the consumer price index (CPI),in a particular year,the price of gasoline rises in the United States by 22 percent; simultaneously,the price of all food items falls by 8 percent.Which statement is correct?

Accepted Answer

A)  If gasoline prices rise in more of the 38 geographical locations than those in which it stays the same or falls,the food price changes are irrelevant. 
B)  This means that the price of gasoline must have increased in more of the 38 geographical locations where the CPI is measured and food prices must have fallen in more of those 38 locations. 
C)  Based solely on the information given,we cannot conclude what happened to the CPI. 
D)  This means that the price of gasoline and food rose in every geographic location where the CPI is measured. 
E)  This means that the price of gasoline and food rose in every place where gasoline and food were sold in the United States during that year. 
A)  If gasoline prices rise in more of the 38 geographical locations than those in which it stays the same or falls,the food price changes are irrelevant. 
B)  This means that the price of gasoline must have increased in more of the 38 geographical locations where the CPI is measured and food prices must have fallen in more of those 38 locations. 
C)  Based solely on the information given,we cannot conclude what happened to the CPI. 
D)  This means that the price of gasoline and food rose in every geographic location where the CPI is measured. 
E)  This means that the price of gasoline and food rose in every place where gasoline and food were sold in the United States during that year.

Question 3

Let's say a bottle of Dr.Wells (an actual soft drink still available but hard to obtain)cost $0.15 in 1970.If the consumer price index (CPI)in 1970 was 37.8 and the current CPI is 240,then the inflation-adjusted price of Dr.Wells would be (rounded to the nearest penny)

Accepted Answer

A)  $0.0236. 
B)  $2.36. 
C)  about a dollar. 
D)  $0.95 
E)  $95.00. 
A)  $0.0236. 
B)  $2.36. 
C)  about a dollar. 
D)  $0.95 
E)  $95.00.

Question 4

What is one reason why a government will deliberately inflate its national money supply?

Accepted Answer

A)  The action benefits retirees and anyone else on a fixed income. 
B)  The action promotes the interests of domestic producers at the expense of foreign ones. 
C)  The action enables the government to borrow funds to remain in operation. 
D)  The action temporarily boosts the growth rate of a sluggish economy. 
E)  The action helps to keep inflation under control in the long run. 
A)  The action benefits retirees and anyone else on a fixed income. 
B)  The action promotes the interests of domestic producers at the expense of foreign ones. 
C)  The action enables the government to borrow funds to remain in operation. 
D)  The action temporarily boosts the growth rate of a sluggish economy. 
E)  The action helps to keep inflation under control in the long run.

Question 5

Explain how inflation redistributes wealth,and under what conditions.

Accepted Answer

When a borrower borrows money,and then r

Question 6

Explain why it makes sense that the equation of exchange,M *V * P * Y,would be true by definition.

Accepted Answer

On the right side,the price level,P,time

Question 7

Suppose that the consumer price index of a country was 160 at Year 1 and 164 at the end of Year 2.What was the country's inflation rate during Year 2?

Accepted Answer

A)  5 percent 
B)  2.5 percent 
C)  64 percent 
D)  164 percent 
E)  32 percent 
A)  5 percent 
B)  2.5 percent 
C)  64 percent 
D)  164 percent 
E)  32 percent

Question 8

In Felixania,cat food constitutes 45 percent of the typical basket of goods for a typical consumer,dog food constitutes 3 percent,and all other goods constitute the remaining 52 percent.Assume the price of cat food rises by 4 percent,the price of dog food falls by 10 percent,and prices remain constant for all other goods.Based on the information given,we can definitely say

Accepted Answer

A)  because the price of dog food fell by more than the price of cat food rose,the consumer price index (CPI)must have decreased. 
B)  the consumer price index (CPI)in Felixania is more 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 Felixanian consumer price index (CPI). 
D)  because cat food is a luxury (as is dog food),consumers are certainly no worse off in terms of their real wages as measured by the Felixanian consumer price index (CPI). 
E)  menu costs have decreased. 
A)  because the price of dog food fell by more than the price of cat food rose,the consumer price index (CPI)must have decreased. 
B)  the consumer price index (CPI)in Felixania is more 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 Felixanian consumer price index (CPI). 
D)  because cat food is a luxury (as is dog food),consumers are certainly no worse off in terms of their real wages as measured by the Felixanian consumer price index (CPI). 
E)  menu costs have decreased.

Question 9

If inflation is estimated by an index like the consumer price index (CPI)to be higher than it actually is,who is liable to be hurt by the error?

Accepted Answer

A)  corporations that adjust worker salaries to keep pace with inflation 
B)  workers whose negotiated union wages include an inflation adjustment 
C)  people whose Social Security incomes are adjusted for inflation 
D)  consumers who pay a fixed percentage of purchases as sales tax 
E)  entrepreneurs who borrow from banks at a fixed rate of interest 
A)  corporations that adjust worker salaries to keep pace with inflation 
B)  workers whose negotiated union wages include an inflation adjustment 
C)  people whose Social Security incomes are adjusted for inflation 
D)  consumers who pay a fixed percentage of purchases as sales tax 
E)  entrepreneurs who borrow from banks at a fixed rate of interest

Question 10

A one-pound bag of Oreos cost 32 cents in 1922 and $2.99 in 2016.Although the 2016 price is higher,there is a very real sense in which Oreos were cheaper in 2016 than in 1922.Explain,making reference to price levels.

Accepted Answer

Although the 2016 price is nominally hig

Question 11

Typically,the largest percentage category in the consumer price index (CPI)is

Accepted Answer

A)  transportation. 
B)  education. 
C)  food and beverages. 
D)  housing. 
E)  medical care. 
A)  transportation. 
B)  education. 
C)  food and beverages. 
D)  housing. 
E)  medical care.

Question 12

According to the July 2015 consumer price index (CPI),the top three consumer expenditure categories are,respectively,

Accepted Answer

A)  housing,transportation,and entertainment. 
B)  transportation,housing,and energy. 
C)  housing,medical care,and food and beverages. 
D)  transportation,housing,and medical care. 
E)  housing,transportation,and food and beverages. 
A)  housing,transportation,and entertainment. 
B)  transportation,housing,and energy. 
C)  housing,medical care,and food and beverages. 
D)  transportation,housing,and medical care. 
E)  housing,transportation,and food and beverages.

Question 13

Describe the methodology of finding the consumer price index (CPI).

Accepted Answer

The prices of 8,000 goods and services a

Question 14

Which nation,at one point in the post-World War I years,experienced an annual inflation rate of 30,000 percent?

Accepted Answer

A)  Germany 
B)  Italy 
C)  France 
D)  the United Kingdom 
E)  Austria 
A)  Germany 
B)  Italy 
C)  France 
D)  the United Kingdom 
E)  Austria

Question 15

If people bought the same market basket of goods as the average consumer again and again the

Accepted Answer

A)  consumer price index (CPI)would be extremely accurate. 
B)  consumer price index (CPI)would be less accurate. 
C)  gross domestic product (GDP)deflator would be more accurate. 
D)  gross domestic product (GDP)deflator would be less accurate. 
E)  consumer price index (CPI)would be biased upward relative to the GDP deflator. 
A)  consumer price index (CPI)would be extremely accurate. 
B)  consumer price index (CPI)would be less accurate. 
C)  gross domestic product (GDP)deflator would be more accurate. 
D)  gross domestic product (GDP)deflator would be less accurate. 
E)  consumer price index (CPI)would be biased upward relative to the GDP deflator.

Question 16

The value of the consumer price index (CPI)is best described as the

Accepted Answer

A)  current year prices to base year prices,holding the market basket content constant. 
B)  current year prices to base year prices,including changes in the content of the market basket. 
C)  base year prices to current year prices,holding the market basket content constant. 
D)  base year prices to current year prices,including changes in the content of the market basket. 
E)  current year quantity to base year quantity,including changes in the prices of the market basket. 
A)  current year prices to base year prices,holding the market basket content constant. 
B)  current year prices to base year prices,including changes in the content of the market basket. 
C)  base year prices to current year prices,holding the market basket content constant. 
D)  base year prices to current year prices,including changes in the content of the market basket. 
E)  current year quantity to base year quantity,including changes in the prices of the market basket.

Question 17

Explain why in industry it is important for both employers and workers to have an accurate measure of inflation.

Accepted Answer

Employers set salaries based on what the

Question 18

If real income increases,then nominal income

Accepted Answer

A)  increases. 
B)  increases if the price index falls. 
C)  rises faster than prices. 
D)  remains constant but the majority of goods in the consumer price index (CPI)get cheaper. 
E)  decreases. 
A)  increases. 
B)  increases if the price index falls. 
C)  rises faster than prices. 
D)  remains constant but the majority of goods in the consumer price index (CPI)get cheaper. 
E)  decreases.

Question 19

Inflation is not a problem

Accepted Answer

A)  if it is under 15 percent,as it usually is in the United States. 
B)  if salaries rise at a slower rate than inflation. 
C)  if the prices of some goods fall even though the prices of others might be rising. 
D)  except that when it occurs,it creates uncertainty over future prices (along with other possible deleterious effects). 
E)  and is not preferred when compared to deflation. 
A)  if it is under 15 percent,as it usually is in the United States. 
B)  if salaries rise at a slower rate than inflation. 
C)  if the prices of some goods fall even though the prices of others might be rising. 
D)  except that when it occurs,it creates uncertainty over future prices (along with other possible deleterious effects). 
E)  and is not preferred when compared to deflation.

Question 20

The chained consumer price index (CPI)tends to be

Accepted Answer

A)  a better measure of prices than the traditional CPI,no matter what the circumstances. 
B)  a better measure of prices than the traditional CPI,but only if inflation is relatively high. 
C)  a better measure of prices than the traditional CPI,but only if inflation is relatively low. 
D)  equally as good as the traditional CPI,under all conditions. 
E)  a poor measure of prices but better than the gross domestic product (GDP)deflator. 
A)  a better measure of prices than the traditional CPI,no matter what the circumstances. 
B)  a better measure of prices than the traditional CPI,but only if inflation is relatively high. 
C)  a better measure of prices than the traditional CPI,but only if inflation is relatively low. 
D)  equally as good as the traditional CPI,under all conditions. 
E)  a poor measure of prices but better than the gross domestic product (GDP)deflator.

Exam 21: The Price Level and Inflation

Refer to the following figure when answering the following questions: -According to the figure,deflation was occurring

According to the consumer price index (CPI),in a particular year,the price of gasoline rises in the United States by 22 percent; simultaneously,the price of all food items falls by 8 percent.Which statement is correct?

Let's say a bottle of Dr.Wells (an actual soft drink still available but hard to obtain)cost $0.15 in 1970.If the consumer price index (CPI)in 1970 was 37.8 and the current CPI is 240,then the inflation-adjusted price of Dr.Wells would be (rounded to the nearest penny)

What is one reason why a government will deliberately inflate its national money supply?

Explain how inflation redistributes wealth,and under what conditions.

Explain why it makes sense that the equation of exchange,M *V * P * Y,would be true by definition.

Suppose that the consumer price index of a country was 160 at Year 1 and 164 at the end of Year 2.What was the country's inflation rate during Year 2?

If inflation is estimated by an index like the consumer price index (CPI)to be higher than it actually is,who is liable to be hurt by the error?

A one-pound bag of Oreos cost 32 cents in 1922 and $2.99 in 2016.Although the 2016 price is higher,there is a very real sense in which Oreos were cheaper in 2016 than in 1922.Explain,making reference to price levels.

Typically,the largest percentage category in the consumer price index (CPI)is

According to the July 2015 consumer price index (CPI),the top three consumer expenditure categories are,respectively,

Describe the methodology of finding the consumer price index (CPI).

Which nation,at one point in the post-World War I years,experienced an annual inflation rate of 30,000 percent?

If people bought the same market basket of goods as the average consumer again and again the

The value of the consumer price index (CPI)is best described as the

Explain why in industry it is important for both employers and workers to have an accurate measure of inflation.

If real income increases,then nominal income

Inflation is not a problem

The chained consumer price index (CPI)tends to be

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

Explain why it makes sense that the equation of exchange,M V P * Y,would be true by definition.