Question 1

Consider a nation in which the price index last year was 130 and this year it is 150. 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 risen. 
D)  Inflation was 15 percent this year. 
E)  Deflation was 15 percent this year. 
A)  Inflation was 20 percent this year. 
B)  Deflation was 20 percent this year. 
C)  Housing prices must have risen. 
D)  Inflation was 15 percent this year. 
E)  Deflation was 15 percent this year. D

Question 2

Inflation in Zimbabwe in 2008

Accepted Answer

A)  was very low. 
B)  did not exist; during 2008 Zimbabwe had deflation. 
C)  was about the same as its neighbors, somewhere around 20 percent. 
D)  was very high at the beginning of the year but fell when Robert Mugabe agreed to share power with Morgan Tsvangarai. 
E)  reached the rate of 80 billion percent per month. 
A)  was very low. 
B)  did not exist; during 2008 Zimbabwe had deflation. 
C)  was about the same as its neighbors, somewhere around 20 percent. 
D)  was very high at the beginning of the year but fell when Robert Mugabe agreed to share power with Morgan Tsvangarai. 
E)  reached the rate of 80 billion percent per month. E

Question 3

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 A

Question 4

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

Accepted Answer

A)  the price level. 
B)  the size of the money supply. 
C)  the rate of inflation. 
D)  nominal GDP. 
E)  real GDP. 
A)  the price level. 
B)  the size of the money supply. 
C)  the rate of inflation. 
D)  nominal GDP. 
E)  real GDP.

Question 5

What is the underlying concept behind the price confusion problem?

Accepted Answer

During a time of inflation, people spend

Question 6

Explain how inflation redistributes wealth, and under what conditions.

Accepted Answer

When a borrower borrows money, and then

Question 7

Using the table below, compute the consumer price index CPI) in 2007 using 2006 as the base year. Show all your work.
$$\begin{array} { l l r l r l } 
\hline \text { Good } & \text { Quantity } & \text { Price } & \begin{array} { l } 
\text { 2006 Total } \
\text { Expenditure }
\end{array} & \text { Price } & \begin{array} { l } 
\text { 2007 Total } \
\text { Expenditure }
\end{array} \
\hline \text { Bagels } & 100 & \$ 1.00 & & \$ 1.50 & \
\text { Shoes } & 10 & \$ 45.00 & & \$ 50.00 & \
\text { DVDs } & 20 & \$ 10.00 & & \$ 12.00 & \
\hline
\end{array}$$

Accepted Answer

\[\begin{array} { l c c l r l } 
\hline

Question 8

The consumer price index CPI) and the gross domestic product GDP) deflator are both measures of inflation. Explain the difference between them.

Accepted Answer

The CPI tracks the prices of a "basket"

Question 9

Your nominal wage increases by 10 percent, and the overall price level increases by 12 percent. Which statement is correct?

Accepted Answer

A)  If you feel richer, you are experiencing money illusion. 
B)  You face a price confusion problem. 
C)  You face a menu costs problem. 
D)  You would be certain that your real wage had increased. 
E)  Bureau of Labor Statistics factors would cause you to experience deflation. 
A)  If you feel richer, you are experiencing money illusion. 
B)  You face a price confusion problem. 
C)  You face a menu costs problem. 
D)  You would be certain that your real wage had increased. 
E)  Bureau of Labor Statistics factors would cause you to experience deflation.

Question 10

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.

Question 11

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 12

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 13

Let's say a company invents a very popular device called a Zorgon, which allows you to send small items via a transporter from one place to another. This would affect the consumer price index CPI) in the sense that the CPI

Accepted Answer

A)  would fail to include purchases of the Zorgon for some period of time after the product entered the market. 
B)  would overstate the cost of the Zorgon because the price would fall over time but the CPI would always be "catching up" and be behind the price decreases. 
C)  would take into account substitution between the Zorgon and the use of shipping services such as FedEx and UPS as the relative price of these changed. 
D)  would fail to take into account the quality of the Zorgon. 
E)  always accurately measures the cost of living. 
A)  would fail to include purchases of the Zorgon for some period of time after the product entered the market. 
B)  would overstate the cost of the Zorgon because the price would fall over time but the CPI would always be "catching up" and be behind the price decreases. 
C)  would take into account substitution between the Zorgon and the use of shipping services such as FedEx and UPS as the relative price of these changed. 
D)  would fail to take into account the quality of the Zorgon. 
E)  always accurately measures the cost of living.

Question 14

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 15

Refer to the following figure when answering the next questions:
  
-Based on the figure, which of the following statements best applies?

Accepted Answer

A)  During most years depicted, Brazil experienced hyperinflation. 
B)  During some years depicted, Brazil experienced inflation; in other years, Brazil experienced deflation. 
C)  Typically, Brazil experienced moderate inflation, with a couple years of high inflation. 
D)  During the period shown, Brazil experienced mostly very high inflation, with a few exceptions. 
E)  During the period shown, Brazil experienced inflation, but it remained mostly low, with a few exceptional years of moderate inflation. 
A)  During most years depicted, Brazil experienced hyperinflation. 
B)  During some years depicted, Brazil experienced inflation; in other years, Brazil experienced deflation. 
C)  Typically, Brazil experienced moderate inflation, with a couple years of high inflation. 
D)  During the period shown, Brazil experienced mostly very high inflation, with a few exceptions. 
E)  During the period shown, Brazil experienced inflation, but it remained mostly low, with a few exceptional years of moderate inflation.

Question 16

What is the underlying concept behind future price level uncertainty?

Accepted Answer

Firms enter into contracts and incur cos

Question 17

Oranges become more expensive in 2008 at Ukrop's in Charlottesville, Virginia. This means

Accepted Answer

A)  the consumer price index CPI) will rise in 2008 if, and only if, Charlottesville is one of the 38 indexed geographic locations and oranges 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 Charlottesville is not included, as long as oranges are included and become more expensive on average at the other indexed locations. 
C)  the consumer price index CPI) will likely fall if the average weighted price of oranges increases in the United States and the price of oranges at Ukrop's makes almost no difference in the CPI. 
D)  the consumer price index CPI) might rise or fall and the price of oranges at Ukrop's could make a very small difference in the CPI if oranges at Ukrop's are included. However, oranges would be a relatively small portion of the entire CPI, if they are included in it at all. 
E)  orange prices are never included in the consumer price index CPI) because the creator of the CPI, Milton Marquis, did not like oranges. 
A)  the consumer price index CPI) will rise in 2008 if, and only if, Charlottesville is one of the 38 indexed geographic locations and oranges 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 Charlottesville is not included, as long as oranges are included and become more expensive on average at the other indexed locations. 
C)  the consumer price index CPI) will likely fall if the average weighted price of oranges increases in the United States and the price of oranges at Ukrop's makes almost no difference in the CPI. 
D)  the consumer price index CPI) might rise or fall and the price of oranges at Ukrop's could make a very small difference in the CPI if oranges at Ukrop's are included. However, oranges would be a relatively small portion of the entire CPI, if they are included in it at all. 
E)  orange prices are never included in the consumer price index CPI) because the creator of the CPI, Milton Marquis, did not like oranges.

Question 18

Wages are often tied to expected rates of inflation; thus, one reason why inflation is important is that

Accepted Answer

A)  when wages rise faster than inflation, companies lose money. 
B)  when wages rise slower than inflation, workers suffer but corporate profits increase. 
C)  inflation creates uncertainty about costs and prices, which affects both employees and employers. 
D)  all inflation will eventually lead to hyperinflation, political instability, and war. 
E)  menu costs mean restaurants have to print new menus, which is costly and unpleasant. 
A)  when wages rise faster than inflation, companies lose money. 
B)  when wages rise slower than inflation, workers suffer but corporate profits increase. 
C)  inflation creates uncertainty about costs and prices, which affects both employees and employers. 
D)  all inflation will eventually lead to hyperinflation, political instability, and war. 
E)  menu costs mean restaurants have to print new menus, which is costly and unpleasant.

Question 19

Which of the following reflects a practical example of the price confusion problem?

Accepted Answer

A)  Lines are short at the coffee shop you own because your resource prices are rising and your retail prices must be raised at the same rate; your customers are confused as to whether they should buy from your shop. 
B)  Long lines at the coffee shop you own prompt you to open a new coffee shop, and the second shop is successful. 
C)  It is difficult for you to determine whether the long lines at your coffee shop are due to increased demand or because inflation has created "too many dollars chasing too few goods." 
D)  It is difficult for you to determine the right signal to send to your consumers through prices because the signal sent to you by the Bureau of Labor Statistics is easily misinterpreted. 
E)  Signals sent from consumers to producers are clear but those from producers to consumers are confused. 
A)  Lines are short at the coffee shop you own because your resource prices are rising and your retail prices must be raised at the same rate; your customers are confused as to whether they should buy from your shop. 
B)  Long lines at the coffee shop you own prompt you to open a new coffee shop, and the second shop is successful. 
C)  It is difficult for you to determine whether the long lines at your coffee shop are due to increased demand or because inflation has created "too many dollars chasing too few goods." 
D)  It is difficult for you to determine the right signal to send to your consumers through prices because the signal sent to you by the Bureau of Labor Statistics is easily misinterpreted. 
E)  Signals sent from consumers to producers are clear but those from producers to consumers are confused.

Question 20

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.

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

Inflation in Zimbabwe in 2008

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

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

What is the underlying concept behind the price confusion problem?

Explain how inflation redistributes wealth, and under what conditions.

Using the table below, compute the consumer price index CPI) in 2007 using 2006 as the base year. Show all your work. Good Quantity Price 2006 Total Expenditure Price 2007 Total Expenditure Bagels 100 \ 1.00 \ 1.50 Shoes 10 \ 45.00 \ 50.00 DVDs 20 \ 10.00 \ 12.00

The consumer price index CPI) and the gross domestic product GDP) deflator are both measures of inflation. Explain the difference between them.

Your nominal wage increases by 10 percent, and the overall price level increases by 12 percent. Which statement is correct?

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

Quality changes are

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?

Let's say a company invents a very popular device called a Zorgon, which allows you to send small items via a transporter from one place to another. This would affect the consumer price index CPI) in the sense that the CPI

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

Refer to the following figure when answering the next questions: -Based on the figure, which of the following statements best applies?

What is the underlying concept behind future price level uncertainty?

Oranges become more expensive in 2008 at Ukrop's in Charlottesville, Virginia. This means

Wages are often tied to expected rates of inflation; thus, one reason why inflation is important is that

Which of the following reflects a practical example of the price confusion problem?

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

Five Foundations of Economics

Model Building and Gains From Trade

The Market at Work: Supply and Demand Y

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

Recessions, Expansions, and the Debate Over How to Manage Them

Federal Budgets: the Tools of Fiscal Policy

Fiscal Policy

Money and the Federal Reserve

Monetary Policy

International Trade

International Finance

Filters

Exam 8: The Price Level and Inflation

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

Inflation in Zimbabwe in 2008

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

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

What is the underlying concept behind the price confusion problem?

Explain how inflation redistributes wealth, and under what conditions.

Using the table below, compute the consumer price index CPI) in 2007 using 2006 as the base year. Show all your work. Good Quantity Price 2006 Total Expenditure Price 2007 Total Expenditure Bagels 100 \ 1.00 \ 1.50 Shoes 10 \ 45.00 \ 50.00 DVDs 20 \ 10.00 \ 12.00

The consumer price index CPI) and the gross domestic product GDP) deflator are both measures of inflation. Explain the difference between them.

Your nominal wage increases by 10 percent, and the overall price level increases by 12 percent. Which statement is correct?

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

Quality changes are

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?

Let's say a company invents a very popular device called a Zorgon, which allows you to send small items via a transporter from one place to another. This would affect the consumer price index CPI) in the sense that the CPI

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

Refer to the following figure when answering the next questions: -Based on the figure, which of the following statements best applies?

What is the underlying concept behind future price level uncertainty?

Oranges become more expensive in 2008 at Ukrop's in Charlottesville, Virginia. This means

Wages are often tied to expected rates of inflation; thus, one reason why inflation is important is that

Which of the following reflects a practical example of the price confusion problem?

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

Five Foundations of Economics

Model Building and Gains From Trade

The Market at Work: Supply and Demand Y

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

Recessions, Expansions, and the Debate Over How to Manage Them

Federal Budgets: the Tools of Fiscal Policy

Fiscal Policy

Money and the Federal Reserve

Monetary Policy

International Trade

International Finance

Filters