Question 1

Use the graph shown to discuss, in qualitative terms, the changes in the U.S. inflation rate from 1960 to 2012. Then estimate the inflation rate in 2012.

Accepted Answer

The nearly flat curve in the early 1960s

Question 2

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, t

Question 3

You are offered two jobs, one in Richmond, Virginia, paying $67,000, and one in San Diego, California, paying $79,000. The price index in Richmond is 104.5; in San Diego it is 132.3. 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 Richmond because the real wage is higher there. 
C)  definitely take the job in San Diego because the real wage is higher there. 
D)  likely take the job in Richmond because there is a Federal Reserve bank there and it would control inflation in the area. 
E)  likely take the job in San Diego, because better weather is directly correlated to real wages. 
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 Richmond because the real wage is higher there. 
C)  definitely take the job in San Diego because the real wage is higher there. 
D)  likely take the job in Richmond because there is a Federal Reserve bank there and it would control inflation in the area. 
E)  likely take the job in San Diego, because better weather is directly correlated to real wages.

Question 4

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 5

Refer to the following table to answer the next  questions: $$\begin{array} { c r } 
\hline \text { Year } & \text { CPI } \
\hline 1999 & 80 \
2000 & 87 \
2001 & 105 \
2002 & 112 \
2003 & 108 \
2004 & 117 \
\hline
\end{array}$$
-As presented in the table, the rate of inflation or deflation) from 2001-2002 was rounded to two decimal places)

Accepted Answer

A)  7.00 percent. 
B)  105.00 percent. 
C)  112.00 percent. 
D)  6.67 percent. 
E)  6.25 percent. 
A)  7.00 percent. 
B)  105.00 percent. 
C)  112.00 percent. 
D)  6.67 percent. 
E)  6.25 percent.

Question 6

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 7

If nominal income increases, then real income

Accepted Answer

A)  increases. 
B)  increases if the price index falls. 
C)  increases if the percent increase in price index rises by more than the percent change in nominal income. 
D)  increases if you buy only the goods included in the consumer price index CPI) and the majority of those goods get cheaper. 
E)  decreases. 
A)  increases. 
B)  increases if the price index falls. 
C)  increases if the percent increase in price index rises by more than the percent change in nominal income. 
D)  increases if you buy only the goods included in the consumer price index CPI) and the majority of those goods get cheaper. 
E)  decreases.

Question 8

Education typically composes about _______ of the consumer price index CPI).

Accepted Answer

A)  3 percent 
B)  5 percent 
C)  10 percent 
D)  15 percent 
E)  20 percent 
A)  3 percent 
B)  5 percent 
C)  10 percent 
D)  15 percent 
E)  20 percent

Question 9

Consider the equation %$\Delta$10M +%$\Delta$V $\approx$ %$\Delta$P + %$\Delta$Y. If the velocity of money does not change %$\Delta$V = 0), and the change in real GDP exactly keeps pace with the change in the money supply %$\Delta$M=%$\Delta$Y), what will happen to the price level P)?

Accepted Answer

A)  It will go up, %$\Delta$P   0. 
B)  It will go down, %$\Delta$P   0. 
C)  It will stay the same, %$\Delta$P = 0. 
D)  It will equal the sum %$\Delta$0M + %$\Delta$Y. 
E)  It will drop out of the equation. 
A)  It will go up, %$\Delta$P   0. 
B)  It will go down, %$\Delta$P   0. 
C)  It will stay the same, %$\Delta$P = 0. 
D)  It will equal the sum %$\Delta$0M + %$\Delta$Y. 
E)  It will drop out of the equation.

Question 10

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 11

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 12

What is the underlying concept behind future price level uncertainty?

Accepted Answer

Firms enter into contracts and incur cos

Question 13

If housing prices increase by 25 percent and the price of all other goods decreases by 22 percent, then

Accepted Answer

A)  the consumer price index CPI) would definitely fall during the year in question because housing prices do not constitute the majority of the CPI. 
B)  the consumer price index CPI) would definitely rise during the year in question because housing prices do constitute the majority of the CPI. 
C)  the consumer price index CPI) would rise by about 1.5 percent because housing constitutes about half of the market basket in the CPI. 
D)  because housing spending is considered an investment, the producer price index PPI) but not the consumer price index CPI) would be the only price index affected by the change. 
E)  the consumer price index CPI) would only be affected in a small way because it includes about 8,000 goods and housing is only one of the 8,000. 
A)  the consumer price index CPI) would definitely fall during the year in question because housing prices do not constitute the majority of the CPI. 
B)  the consumer price index CPI) would definitely rise during the year in question because housing prices do constitute the majority of the CPI. 
C)  the consumer price index CPI) would rise by about 1.5 percent because housing constitutes about half of the market basket in the CPI. 
D)  because housing spending is considered an investment, the producer price index PPI) but not the consumer price index CPI) would be the only price index affected by the change. 
E)  the consumer price index CPI) would only be affected in a small way because it includes about 8,000 goods and housing is only one of the 8,000.

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

Assume tuition and fees at North Carolina State University cost $4,259 in 2004 and $7,787 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 more rapidly than inflation. 
C)  tuition has increased at about the same rate as inflation. 
D)  nominal tuition has decreased. 
E)  tuition suffers from money illusion due to inflation. 
A)  tuition has increased more slowly than inflation. 
B)  tuition has increased more rapidly than inflation. 
C)  tuition has increased at about the same rate as inflation. 
D)  nominal tuition has decreased. 
E)  tuition suffers from money illusion due to inflation.

Question 16

Refer to the following figure when answering the next questions:
  
-Based on the figure, and if we define inflation as being "under control" at rates less than 10 percent, when was inflation under control?

Accepted Answer

A)  1996-2002 only 
B)  1997-2003 and 2005-2011 
C)  2005-2011 only 
D)  1996-1997 only 
E)  It was never under control. 
A)  1996-2002 only 
B)  1997-2003 and 2005-2011 
C)  2005-2011 only 
D)  1996-1997 only 
E)  It was never under control.

Question 17

If the consumer price index CPI) was 100 in the period of 1982-1984, then

Accepted Answer

A)  there would be deflation. 
B)  this period was the base period. 
C)  this period was characterized by menu costs. 
D)  this period was economically optimal. 
E)  this period was inflationary. 
A)  there would be deflation. 
B)  this period was the base period. 
C)  this period was characterized by menu costs. 
D)  this period was economically optimal. 
E)  this period was inflationary.

Question 18

From 1960 until 2012, the long-run average rate of inflation in the United States was

Accepted Answer

A)  less than 1 percent. 
B)  about 4 percent. 
C)  about 8 percent. 
D)  about 12 percent. 
E)  negative. 
A)  less than 1 percent. 
B)  about 4 percent. 
C)  about 8 percent. 
D)  about 12 percent. 
E)  negative.

Question 19

Refer to the following figure when answering the next questions:
  
-Referring to the figure, we can observe that

Accepted Answer

A)  inflation seemed to stabilize in the years 2000-2002, but it then spiked between 2002 and 2004. 
B)  inflation was always under control in every year shown. 
C)  there was a relatively constant increase in inflation throughout the entire period shown. 
D)  inflation tended to fall consistently throughout the entire period shown. 
E)  there were periods of inflation and deflation depicted in the chart. 
A)  inflation seemed to stabilize in the years 2000-2002, but it then spiked between 2002 and 2004. 
B)  inflation was always under control in every year shown. 
C)  there was a relatively constant increase in inflation throughout the entire period shown. 
D)  inflation tended to fall consistently throughout the entire period shown. 
E)  there were periods of inflation and deflation depicted in the chart.

Question 20

The long-run inflation rate in the United States is about

Accepted Answer

A)  20 percent. 
B)  10 percent. 
C)  4 percent. 
D)  2 percent. 
E)  -4 percent. 
A)  20 percent. 
B)  10 percent. 
C)  4 percent. 
D)  2 percent. 
E)  -4 percent.

Use the graph shown to discuss, in qualitative terms, the changes in the U.S. inflation rate from 1960 to 2012. Then estimate the inflation rate in 2012.

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

You are offered two jobs, one in Richmond, Virginia, paying $67,000, and one in San Diego, California, paying $79,000. The price index in Richmond is 104.5; in San Diego it is 132.3. If real wages are the only consideration, then you would

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

Refer to the following table to answer the next questions: Year CPI 1999 80 2000 87 2001 105 2002 112 2003 108 2004 117 -As presented in the table, the rate of inflation or deflation) from 2001-2002 was rounded to two decimal places)

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

If nominal income increases, then real income

Education typically composes about _______ of the consumer price index CPI).

Consider the equation % $\Delta$ 10M +% $\Delta$ V $\approx$ % $\Delta$ P + % $\Delta$ Y. If the velocity of money does not change % $\Delta$ V = 0), and the change in real GDP exactly keeps pace with the change in the money supply % $\Delta$ M=% $\Delta$ Y), what will happen to the price level P)?

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

The housing crisis has some roots in inflation because

What is the underlying concept behind future price level uncertainty?

If housing prices increase by 25 percent and the price of all other goods decreases by 22 percent, then

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

Assume tuition and fees at North Carolina State University cost $4,259 in 2004 and $7,787 in 2012. If the price index was 184 in 2004 and 226 in 2012, then we could say

Refer to the following figure when answering the next questions: -Based on the figure, and if we define inflation as being "under control" at rates less than 10 percent, when was inflation under control?

If the consumer price index CPI) was 100 in the period of 1982-1984, then

From 1960 until 2012, the long-run average rate of inflation in the United States was

Refer to the following figure when answering the next questions: -Referring to the figure, we can observe that

The long-run inflation rate in the United States is about

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

Use the graph shown to discuss, in qualitative terms, the changes in the U.S. inflation rate from 1960 to 2012. Then estimate the inflation rate in 2012.

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

You are offered two jobs, one in Richmond, Virginia, paying $67,000, and one in San Diego, California, paying $79,000. The price index in Richmond is 104.5; in San Diego it is 132.3. If real wages are the only consideration, then you would

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

Refer to the following table to answer the next questions: Year CPI 1999 80 2000 87 2001 105 2002 112 2003 108 2004 117 -As presented in the table, the rate of inflation or deflation) from 2001-2002 was rounded to two decimal places)

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

If nominal income increases, then real income

Education typically composes about _______ of the consumer price index CPI).

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

The housing crisis has some roots in inflation because

What is the underlying concept behind future price level uncertainty?

If housing prices increase by 25 percent and the price of all other goods decreases by 22 percent, then

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

Assume tuition and fees at North Carolina State University cost $4,259 in 2004 and $7,787 in 2012. If the price index was 184 in 2004 and 226 in 2012, then we could say

Refer to the following figure when answering the next questions: -Based on the figure, and if we define inflation as being "under control" at rates less than 10 percent, when was inflation under control?

If the consumer price index CPI) was 100 in the period of 1982-1984, then

From 1960 until 2012, the long-run average rate of inflation in the United States was

Refer to the following figure when answering the next questions: -Referring to the figure, we can observe that

The long-run inflation rate in the United States is about

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