Question 1

Quality changes are

Accepted Answer

A)  easily accounted for in the consumer price index (CPI). 
B)  always included in the consumer price index (CPI). 
C)  included in the gross domestic product (GDP)deflator but not the consumer price index (CPI). 
D)  generally included in both the consumer price index (CPI)and the gross domestic product (GDP)deflator. 
E)  at least partially adjusted for in the consumer price index (CPI). 
A)  easily accounted for in the consumer price index (CPI). 
B)  always included in the consumer price index (CPI). 
C)  included in the gross domestic product (GDP)deflator but not the consumer price index (CPI). 
D)  generally included in both the consumer price index (CPI)and the gross domestic product (GDP)deflator. 
E)  at least partially adjusted for in the consumer price index (CPI).

Question 2

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 the prices for all other goods remain constant.Based on the information given,we can definitely say

Accepted Answer

A)  because all consumers are the same,all consumers must be worse off as a result of the change. 
B)  because the goods included in the consumer price index (CPI)necessarily change from year to year,we can't determine the value of the new CPI. 
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)  if consumers get a 4 percent pay raise,they are better off in terms of their real income compared to inflation as measured by the Felixanian consumer price index (CPI). 
E)  menu costs have decreased. 
A)  because all consumers are the same,all consumers must be worse off as a result of the change. 
B)  because the goods included in the consumer price index (CPI)necessarily change from year to year,we can't determine the value of the new CPI. 
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)  if consumers get a 4 percent pay raise,they are better off in terms of their real income compared to inflation as measured by the Felixanian consumer price index (CPI). 
E)  menu costs have decreased.

Question 3

Three accuracy problems with the consumer price index (CPI)are

Accepted Answer

A)  the income effect,substitution effect,and money illusion. 
B)  substitution,quality changes,and the money illusion. 
C)  price confusion,substitution,and quality changes. 
D)  substitution,quality changes,and the availability of new goods and services. 
E)  the availability of new goods and services,substitution,and traditional bundle bias. 
A)  the income effect,substitution effect,and money illusion. 
B)  substitution,quality changes,and the money illusion. 
C)  price confusion,substitution,and quality changes. 
D)  substitution,quality changes,and the availability of new goods and services. 
E)  the availability of new goods and services,substitution,and traditional bundle bias.

Question 4

Consider a nation in which the price index was 150 last year and this year it is 130.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 fallen. 
D)  Inflation was 13.33 percent this year. 
E)  Deflation was 13.33 percent this year. 
A)  Inflation was 20 percent this year. 
B)  Deflation was 20 percent this year. 
C)  Housing prices must have fallen. 
D)  Inflation was 13.33 percent this year. 
E)  Deflation was 13.33 percent this year.

Question 5

Tofu becomes more expensive in 2008 at Safeway/Vons in Laguna Nigel,California.This means

Accepted Answer

A)  the consumer price index (CPI)will rise in 2008 if,and only if,Laguna Nigel is one of the considered 38 geographic locations and tofu is one of the 8,000 goods included in the CPI. 
B)  the consumer price index (CPI)will almost certainly rise in 2008,even if Laguna Nigel is not included in the index,as long as tofu is included and becomes more expensive on average at the other locations. 
C)  the consumer price index (CPI)will likely fall (in 2008)if the average weighted price of tofu increases in the United States and the price of tofu at Safeway/Vons makes almost no difference in the CPI. 
D)  the consumer price index (CPI)might rise or fall (in 2008)and the price of tofu at Safeway/Vons could make a very small difference in the CPI if tofu at Safeway/Vons is included in the index.But because tofu is a relatively large portion of the entire CPI,it is most likely the CPI will rise. 
E)  tofu,even if included in the consumer price index (CPI)in 2008,would make a small difference on the average weighted price of food and beverages.Food and beverages only constitute a small portion of the CPI,and hence,this would be unlikely to affect the overall CPI by any significant amount. 
A)  the consumer price index (CPI)will rise in 2008 if,and only if,Laguna Nigel is one of the considered 38 geographic locations and tofu is one of the 8,000 goods included in the CPI. 
B)  the consumer price index (CPI)will almost certainly rise in 2008,even if Laguna Nigel is not included in the index,as long as tofu is included and becomes more expensive on average at the other locations. 
C)  the consumer price index (CPI)will likely fall (in 2008)if the average weighted price of tofu increases in the United States and the price of tofu at Safeway/Vons makes almost no difference in the CPI. 
D)  the consumer price index (CPI)might rise or fall (in 2008)and the price of tofu at Safeway/Vons could make a very small difference in the CPI if tofu at Safeway/Vons is included in the index.But because tofu is a relatively large portion of the entire CPI,it is most likely the CPI will rise. 
E)  tofu,even if included in the consumer price index (CPI)in 2008,would make a small difference on the average weighted price of food and beverages.Food and beverages only constitute a small portion of the CPI,and hence,this would be unlikely to affect the overall CPI by any significant amount.

Question 6

Donna Newton made $0.30 per hour in 1946 at a small restaurant in Clearfield,Pennsylvania.If the consumer price index (CPI)was 18.3 in 1946 and 202.4 in 2011,then Donna's inflation-adjusted wage would be

Accepted Answer

A)  $7.25,by U.S.law. 
B)  $0.30. 
C)  $2.87. 
D)  $0.61. 
E)  $3.32. 
A)  $7.25,by U.S.law. 
B)  $0.30. 
C)  $2.87. 
D)  $0.61. 
E)  $3.32.

Question 7

The wealth-redistribution effect of inflation requires that the inflation be

Accepted Answer

A)  lower than in the recent past. 
B)  higher than in the recent past. 
C)  unexpected. 
D)  widely anticipated. 
E)  a deliberate act of government. 
A)  lower than in the recent past. 
B)  higher than in the recent past. 
C)  unexpected. 
D)  widely anticipated. 
E)  a deliberate act of government.

Question 8

Describe menu costs.

Accepted Answer

When inflation occurs,producers have to

Question 9

Chicken becomes more expensive in 2008 at Wegmans in State College,Pennsylvania.This means

Accepted Answer

A)  the consumer price index (CPI)will rise in 2008 if,and only if,State College is one of the 38 geographic locations and chickens 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 State College is not included,as long as chicken is included and becomes more expensive on average at the indexed locations. 
C)  the consumer price index (CPI)will likely fall if the average weighted price of chicken increases in the United States and the price of chicken at Wegmans makes almost no difference in the CPI. 
D)  the consumer price index (CPI)might rise or fall and the price of chicken at Wegmans could make a very small difference in the CPI if chicken at Wegmans is included in the index.However,chicken would be a relatively small portion of the entire CPI,if it is included at all. 
E)  chicken prices are never included in the consumer price index (CPI)because the creator of the CPI,James Gapinski,did not like chickens. 
A)  the consumer price index (CPI)will rise in 2008 if,and only if,State College is one of the 38 geographic locations and chickens 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 State College is not included,as long as chicken is included and becomes more expensive on average at the indexed locations. 
C)  the consumer price index (CPI)will likely fall if the average weighted price of chicken increases in the United States and the price of chicken at Wegmans makes almost no difference in the CPI. 
D)  the consumer price index (CPI)might rise or fall and the price of chicken at Wegmans could make a very small difference in the CPI if chicken at Wegmans is included in the index.However,chicken would be a relatively small portion of the entire CPI,if it is included at all. 
E)  chicken prices are never included in the consumer price index (CPI)because the creator of the CPI,James Gapinski,did not like chickens.

Question 10

Explain the thinking behind Milton Friedman's famous declaration that "inflation is always and everywhere a monetary phenomenon."

Accepted Answer

Inflation is a rise in the general level

Question 11

As a business owner,you find that your resource prices are increasing often.Because these costs are rising,you find it necessary to change your prices frequently.This best describes

Accepted Answer

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

Question 12

Assume the price of salt increased from $0.30 in 1985 to $0.50 in 1995.If we calculate the average rate of price increase for salt over this period,we could accurately say the

Accepted Answer

A)  price of salt increased at about a 40 percent rate per year during this period. 
B)  price of salt increased at about a 20 percent rate per year during this period. 
C)  price of salt increased by about 20 percent total during this period. 
D)  price of salt increased at about a 5 percent rate per year during this period. 
E)  real price of salt definitely increased during the period. 
A)  price of salt increased at about a 40 percent rate per year during this period. 
B)  price of salt increased at about a 20 percent rate per year during this period. 
C)  price of salt increased by about 20 percent total during this period. 
D)  price of salt increased at about a 5 percent rate per year during this period. 
E)  real price of salt definitely increased during the period.

Question 13

One improvement of the chained consumer price index (CPI)over the traditional CPI is that the

Accepted Answer

A)  chained CPI more quickly takes into account new goods. 
B)  chained CPI accounts for substitution between goods. 
C)  chained CPI is "progressive," whereas the traditional CPI is "regressive." 
D)  traditional CPI accounts only for the prices of goods,whereas,the chained CPI accounts for the prices of services,as well. 
E)  chained CPI more easily accounts for deflation. 
A)  chained CPI more quickly takes into account new goods. 
B)  chained CPI accounts for substitution between goods. 
C)  chained CPI is "progressive," whereas the traditional CPI is "regressive." 
D)  traditional CPI accounts only for the prices of goods,whereas,the chained CPI accounts for the prices of services,as well. 
E)  chained CPI more easily accounts for deflation.

Question 14

If the value of the consumer price index (CPI)in 2013 was 135 and the value of the CPI in 2012 was 117,we could correctly say that the

Accepted Answer

A)  typical basket of goods was about 18 percent more expensive in 2013 than in 2012. 
B)  typical basket of goods was about 18 percent less expensive in 2013 than in 2012. 
C)  typical basket of goods was about 15.4 percent more expensive in 2013 than in 2012. 
D)  average price of all items included in gross domestic product (GDP)was about 18 percent more expensive in 2013 than in 2012. 
E)  average price of all items included in gross domestic product (GDP)was about 15.4 percent more expensive in 2013 than in 2012. 
A)  typical basket of goods was about 18 percent more expensive in 2013 than in 2012. 
B)  typical basket of goods was about 18 percent less expensive in 2013 than in 2012. 
C)  typical basket of goods was about 15.4 percent more expensive in 2013 than in 2012. 
D)  average price of all items included in gross domestic product (GDP)was about 18 percent more expensive in 2013 than in 2012. 
E)  average price of all items included in gross domestic product (GDP)was about 15.4 percent more expensive in 2013 than in 2012.

Exam 21: The Price Level and Inflation

Quality changes are

Three accuracy problems with the consumer price index (CPI)are

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

Tofu becomes more expensive in 2008 at Safeway/Vons in Laguna Nigel,California.This means

Donna Newton made $0.30 per hour in 1946 at a small restaurant in Clearfield,Pennsylvania.If the consumer price index (CPI)was 18.3 in 1946 and 202.4 in 2011,then Donna's inflation-adjusted wage would be

The wealth-redistribution effect of inflation requires that the inflation be

Describe menu costs.

Chicken becomes more expensive in 2008 at Wegmans in State College,Pennsylvania.This means

Explain the thinking behind Milton Friedman's famous declaration that "inflation is always and everywhere a monetary phenomenon."

As a business owner,you find that your resource prices are increasing often.Because these costs are rising,you find it necessary to change your prices frequently.This best describes

Assume the price of salt increased from $0.30 in 1985 to $0.50 in 1995.If we calculate the average rate of price increase for salt over this period,we could accurately say the

One improvement of the chained consumer price index (CPI)over the traditional CPI is that the

If the value of the consumer price index (CPI)in 2013 was 135 and the value of the CPI in 2012 was 117,we could correctly say that 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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