Question 1

The percentage change in any economic variable, including the consumer price index CPI), is measured by which equation?

Accepted Answer

A)  Previous Year - Current Year) / Previous Year) * 100 
B)  Current Year - Previous Year) / Previous Year) * 100 
C)  Current Year - Previous Year) / Current Year) *100 
D)  Previous Year - Current Year) / Previous Year 
E)  Current Year - Previous Year) / Previous Year 
A)  Previous Year - Current Year) / Previous Year) * 100 
B)  Current Year - Previous Year) / Previous Year) * 100 
C)  Current Year - Previous Year) / Current Year) *100 
D)  Previous Year - Current Year) / Previous Year 
E)  Current Year - Previous Year) / Previous Year

Question 2

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 3

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 4

Medical care typically composes _______ of the typical consumer price index CPI).

Accepted Answer

A)  5 percent 
B)  8 percent 
C)  10 percent 
D)  12 percent 
E)  15 percent 
A)  5 percent 
B)  8 percent 
C)  10 percent 
D)  12 percent 
E)  15 percent

Question 5

What is the consumer price index CPI)?

Accepted Answer

A)  The CPI is the measure of consumer prices in both rural and urban areas. It is calculated by adding up all prices. 
B)  The CPI is a measure of the price level based on the consumption patterns of a typical consumer. 
C)  The CPI is a measure of all prices in the economy. 
D)  The CPI is a measure of food prices, because food is what is consumed. 
E)  The CPI is a measure of food, clothing, and housing prices. 
A)  The CPI is the measure of consumer prices in both rural and urban areas. It is calculated by adding up all prices. 
B)  The CPI is a measure of the price level based on the consumption patterns of a typical consumer. 
C)  The CPI is a measure of all prices in the economy. 
D)  The CPI is a measure of food prices, because food is what is consumed. 
E)  The CPI is a measure of food, clothing, and housing prices.

Question 6

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 7

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 8

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 9

Suppose a basket of goods and services has been selected to calculate the consumer price index CPI) and 2002 has been selected as the base year. In 2002, the basket's cost was $600; in 2004, the basket's cost was $650; and in 2006, the basket's cost was $700. The value of the CPI in 2004 was rounded to one decimal place)

Accepted Answer

A)  92.3. 
B)  106.3. 
C)  108.3. 
D)  152.0. 
E)  more than 155.0. 
A)  92.3. 
B)  106.3. 
C)  108.3. 
D)  152.0. 
E)  more than 155.0.

Question 10

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

Accepted Answer

A)  The action promotes the long-term health of the national economy. 
B)  The action is part of efforts to attract overseas investors and immigrant labor. 
C)  The action is part of printing money to pay off the government's debts. 
D)  The action tamps down the growth rate of an overheated economy. 
E)  The action helps the money supply keep up with the consequences of rising prices. 
A)  The action promotes the long-term health of the national economy. 
B)  The action is part of efforts to attract overseas investors and immigrant labor. 
C)  The action is part of printing money to pay off the government's debts. 
D)  The action tamps down the growth rate of an overheated economy. 
E)  The action helps the money supply keep up with the consequences of rising prices.

Question 11

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.

Question 12

The textbook shows that the inflation-adjusted movie receipts for Titanic released in 1997) were $3,205,455,051 in 2015 and the original receipts were $2,186,772,302. The implication is that

Accepted Answer

A)  prices were about the same in 2015 as in 1997. 
B)  hyperinflation has occurred since 1997. 
C)  prices were about one-third lower in 2015 than they had been in 1997. 
D)  prices were roughly 50% higher in 2015 than they had been in 1997. 
E)  Titanic was a bad movie at the time of its release but has become more popular over time. 
A)  prices were about the same in 2015 as in 1997. 
B)  hyperinflation has occurred since 1997. 
C)  prices were about one-third lower in 2015 than they had been in 1997. 
D)  prices were roughly 50% higher in 2015 than they had been in 1997. 
E)  Titanic was a bad movie at the time of its release but has become more popular over time.

Question 13

What is the underlying concept behind the price confusion problem?

Accepted Answer

During a time of inflation, people spend

Question 14

Why would knowing the cost of living index be important in real life?
Hint: Consider the following scenario. You get two job offers: one in San Francisco paying $80,000 per year and the other in Dallas paying $68,000 per year.)

Accepted Answer

The cost of living index will help you d

Question 15

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 16

Inflation necessarily occurs when

Accepted Answer

A)  the price of gasoline rises. 
B)  a greater number of goods increase in price compared to the number of goods that undergo a price decrease. 
C)  the overall price level, such as the consumer price index CPI), rises. 
D)  there is an increase in the rate of change in the price level. 
E)  the price of at least one good, but possibly more than one good, in the economy increases. 
A)  the price of gasoline rises. 
B)  a greater number of goods increase in price compared to the number of goods that undergo a price decrease. 
C)  the overall price level, such as the consumer price index CPI), rises. 
D)  there is an increase in the rate of change in the price level. 
E)  the price of at least one good, but possibly more than one good, in the economy increases.

Question 17

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 18

Deflation is occurring in a nation; the implications) of this is/are that

Accepted Answer

A)  both real and nominal wages are rising. 
B)  both real and nominal wages are falling. 
C)  if you have no job and have no income, you are better off because things are cheaper. 
D)  holding nominal wages constant, the real wage would rise. 
E)  holding nominal wages constant, the real wage would fall. 
A)  both real and nominal wages are rising. 
B)  both real and nominal wages are falling. 
C)  if you have no job and have no income, you are better off because things are cheaper. 
D)  holding nominal wages constant, the real wage would rise. 
E)  holding nominal wages constant, the real wage would fall.

Question 19

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 20

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.

The percentage change in any economic variable, including the consumer price index CPI), is measured by which equation?

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

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

Medical care typically composes _______ of the typical consumer price index CPI).

What is the consumer price index CPI)?

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.

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

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

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

By definition, the velocity of money is the

The textbook shows that the inflation-adjusted movie receipts for Titanic released in 1997) were $3,205,455,051 in 2015 and the original receipts were $2,186,772,302. The implication is that

What is the underlying concept behind the price confusion problem?

Why would knowing the cost of living index be important in real life? Hint: Consider the following scenario. You get two job offers: one in San Francisco paying $80,000 per year and the other in Dallas paying $68,000 per year.)

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

Inflation necessarily occurs when

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,

Deflation is occurring in a nation; the implications) of this is/are that

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

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

Five Foundations of Economics

Model Building and Gains From Trade

The Market at Work: Supply and Demand

Market Outcomes and Tax Incidence

Price Controls

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 Learning Objectives

International Trade

International Finance

Filters

Exam 8: The Price Level and Inflation

The percentage change in any economic variable, including the consumer price index CPI), is measured by which equation?

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

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

Medical care typically composes _______ of the typical consumer price index CPI).

What is the consumer price index CPI)?

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.

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

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

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

By definition, the velocity of money is the

The textbook shows that the inflation-adjusted movie receipts for Titanic released in 1997) were $3,205,455,051 in 2015 and the original receipts were $2,186,772,302. The implication is that

What is the underlying concept behind the price confusion problem?

Why would knowing the cost of living index be important in real life? Hint: Consider the following scenario. You get two job offers: one in San Francisco paying $80,000 per year and the other in Dallas paying $68,000 per year.)

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

Inflation necessarily occurs when

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,

Deflation is occurring in a nation; the implications) of this is/are that

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

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

Five Foundations of Economics

Model Building and Gains From Trade

The Market at Work: Supply and Demand

Market Outcomes and Tax Incidence

Price Controls

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 Learning Objectives

International Trade

International Finance

Filters

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.