Exam 8: The Price Level and Inflation

Define "inflation." Be specific. Be sure to address whether the prices of all goods are increasing, what is included in determining the basis for changes in the price level, and how the price level is measured.

In 1940 you could buy a "nickel Pepsi" for oddly enough) a nickel. If the price index in 1940 was 14 and the 2011 price index was 221, then the inflation-adjusted price of a Pepsi would be

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)

If mustard now costs $0.75 when today's price index is 225, and if the price index in 1970 was 38, we would most accurately say that

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?

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

Usually in the United States and other advanced economies

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

In which direction does a surge of inflation redistribute wealth?

What is the consumer price index CPI)?

In a particular nation, people buy a completely unique and different set of goods and services every year. None of the goods purchased in the new year are the same as any of the goods purchased in the previous year. Based on this information

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

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

The chained consumer price index CPI) tends to more accurately reflect prices by updating the consumer basket of goods

What are so-called shoe-leather costs associated with inflation? Explain and give examples.

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

Explain the notion of money illusion in specific detail.

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?

Inflation necessarily occurs when

Three accuracy problems with the consumer price index CPI) are