Question 1

According to the July 2015 consumer price index CPI), the top three consumer expenditure categories are, respectively,

Accepted Answer

A)  housing, transportation, and entertainment. 
B)  transportation, housing, and energy. 
C)  housing, medical care, and food and beverages. 
D)  transportation, housing, and medical care. 
E)  housing, transportation, and food and beverages. 
A)  housing, transportation, and entertainment. 
B)  transportation, housing, and energy. 
C)  housing, medical care, and food and beverages. 
D)  transportation, housing, and medical care. 
E)  housing, transportation, and food and beverages.

Question 2

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

Accepted Answer

A)  that both real and nominal wages are rising. 
B)  that both real and nominal wages are falling. 
C)  almost none, because most wages increase at about the same rate as inflation. 
D)  that holding nominal wages constant, the real wage would rise. 
E)  that holding nominal wages constant, the real wage would fall. 
A)  that both real and nominal wages are rising. 
B)  that both real and nominal wages are falling. 
C)  almost none, because most wages increase at about the same rate as inflation. 
D)  that holding nominal wages constant, the real wage would rise. 
E)  that holding nominal wages constant, the real wage would fall.

Question 3

Your entertainment price index EPI) was computed based on three goods: movie tickets, popcorn, and limeade. If you change the quantity of these goods from this year to next year and the prices of two of the three goods increase while the other price falls, then your EPI

Accepted Answer

A)  would definitely fall during the year in question if, and only if, you buy less of all the goods in question. 
B)  would definitely rise during the year in question because two of the three goods became more expensive. 
C)  might rise or fall, contingent on both the quantity of the goods that you bought and the prices of these goods. 
D)  might rise or fall, contingent only on the quantity of the goods that you bought and regardless of the prices of these goods. 
E)  might rise or fall, contingent only on the percentage of the market basket that these goods constituted and the percentage that each good occupied within the basket, regardless of the quantity change from year to year. 
A)  would definitely fall during the year in question if, and only if, you buy less of all the goods in question. 
B)  would definitely rise during the year in question because two of the three goods became more expensive. 
C)  might rise or fall, contingent on both the quantity of the goods that you bought and the prices of these goods. 
D)  might rise or fall, contingent only on the quantity of the goods that you bought and regardless of the prices of these goods. 
E)  might rise or fall, contingent only on the percentage of the market basket that these goods constituted and the percentage that each good occupied within the basket, regardless of the quantity change from year to year.

Question 4

Typically the consumer price index CPI) is calculated by checking the prices of

Accepted Answer

A)  all goods in 38 geographic locations. 
B)  only consumer goods in all populated places in the United States using the Census Bureau's definition of a populated place). 
C)  about 8,000 goods in about 38 locations across the United States. 
D)  about 8,000 goods in about 38 locations in North America. 
E)  about 10,000 goods in about 75 locations in the United States. 
A)  all goods in 38 geographic locations. 
B)  only consumer goods in all populated places in the United States using the Census Bureau's definition of a populated place). 
C)  about 8,000 goods in about 38 locations across the United States. 
D)  about 8,000 goods in about 38 locations in North America. 
E)  about 10,000 goods in about 75 locations in the United States.

Question 5

To convert a current price of a product to its price in the past, we would take the current price of a product and

Accepted Answer

A)  divide by the current price index and then add the previous price index. 
B)  multiply by the ratio of the current price index to the previous price index. 
C)  multiply by the ratio of the previous price index to the current price index. 
D)  divide by the ratio of the previous price index to the current price index. 
E)  average the chain-weighted consumer price index CPI) and the traditional CPI of the previous year, and then multiply the current price by the average of the two. 
A)  divide by the current price index and then add the previous price index. 
B)  multiply by the ratio of the current price index to the previous price index. 
C)  multiply by the ratio of the previous price index to the current price index. 
D)  divide by the ratio of the previous price index to the current price index. 
E)  average the chain-weighted consumer price index CPI) and the traditional CPI of the previous year, and then multiply the current price by the average of the two.

Question 6

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 7

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 8

If your real wage rose but your nominal wage fell, this would imply that

Accepted Answer

A)  inflation is positive but less than the rate of increase in your wage. 
B)  inflation has occurred. 
C)  your boss took some of your wages illegally. 
D)  the overall price level has fallen more than your nominal wage. 
E)  housing prices have fallen, and because you own a house, it reduces the value of your real wage. 
A)  inflation is positive but less than the rate of increase in your wage. 
B)  inflation has occurred. 
C)  your boss took some of your wages illegally. 
D)  the overall price level has fallen more than your nominal wage. 
E)  housing prices have fallen, and because you own a house, it reduces the value of your real wage.

Question 9

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 10

The Bureau of Labor Statistics releases consumer price index CPI) data

Accepted Answer

A)  hourly. 
B)  daily. 
C)  weekly. 
D)  monthly. 
E)  only when the typical basket of goods changes. 
A)  hourly. 
B)  daily. 
C)  weekly. 
D)  monthly. 
E)  only when the typical basket of goods changes.

Question 11

It has been shown that increases in the money supply are directly related to the rate of inflation. If the previous statement is true, then

Accepted Answer

A)  nations that increase their money supplies most rapidly will be the most prosperous. 
B)  hyperinflation will normally be associated with large increases in the money supply. 
C)  hyperinflation will normally be associated with large decreases in the money supply. 
D)  menu costs will rise when the money supply falls. 
E)  real wages rise whenever the money supply increases. 
A)  nations that increase their money supplies most rapidly will be the most prosperous. 
B)  hyperinflation will normally be associated with large increases in the money supply. 
C)  hyperinflation will normally be associated with large decreases in the money supply. 
D)  menu costs will rise when the money supply falls. 
E)  real wages rise whenever the money supply increases.

Question 12

If the price of industrial plastic injection molding machines rose by 20 percent and the price of oranges fell by 20 percent, then

Accepted Answer

A)  the consumer price index CPI) would remain unchanged. 
B)  the consumer price index CPI) would rise if oranges had a greater weight. 
C)  the consumer price index CPI) would rise because plastic injection molding machines weigh more physically per unit. 
D)  the consumer price index CPI) would fall because people buy more oranges than plastic injection molding machines. 
E)  all else equal, the consumer price index CPI) would fall by the weighted value of oranges in the CPI, but because industrial plastic injection molding machines are not a consumer good, they would not affect the CPI. 
A)  the consumer price index CPI) would remain unchanged. 
B)  the consumer price index CPI) would rise if oranges had a greater weight. 
C)  the consumer price index CPI) would rise because plastic injection molding machines weigh more physically per unit. 
D)  the consumer price index CPI) would fall because people buy more oranges than plastic injection molding machines. 
E)  all else equal, the consumer price index CPI) would fall by the weighted value of oranges in the CPI, but because industrial plastic injection molding machines are not a consumer good, they would not affect the CPI.

Question 13

Inflation occurs when

Accepted Answer

A)  all prices in the economy rise. 
B)  the prices of some goods rise and prices of some goods fall, but more goods have price increases than decreases. 
C)  the prices of some goods rise and prices of some goods fall, but fewer goods have price increases than decreases. 
D)  the overall level of prices rises. 
E)  all prices in the economy fall. 
A)  all prices in the economy rise. 
B)  the prices of some goods rise and prices of some goods fall, but more goods have price increases than decreases. 
C)  the prices of some goods rise and prices of some goods fall, but fewer goods have price increases than decreases. 
D)  the overall level of prices rises. 
E)  all prices in the economy fall.

Question 14

A one-pound bag of Oreos cost 32 cents in 1922 and $2.99 in 2016. Although the 2016 price is higher, there is a very real sense in which Oreos were cheaper in 2016 than in 1922. Explain, making reference to price levels.

Accepted Answer

Although the 2016 price is nominally hig

Question 15

Consider the equation %$\triangle$M + %$\triangle$V $\approx$ %$\triangle$P + %$\triangle$Y. If there is no change in real GDP( %$\triangle$Y = 0) and there is no change in the money supply (%$\triangle$M = 0), what would have to happen for there to be inflation (%$\triangle$P > 0)?

Accepted Answer

A)  Money would have to change hands less often, %$\triangle$V  0. 
E)  The money velocity would have to remain the same, %$\triangle$V = 0. 
A)  Money would have to change hands less often, %$\triangle$V  0. 
E)  The money velocity would have to remain the same, %$\triangle$V = 0.

Question 16

Inflation sometimes causes people to pay ______capital gains tax than they ought to, _____.

Accepted Answer

A)  less; because tax laws do not typically account for inflation 
B)  less; because inflation creates the opportunity for a tax write-off 
C)  more; if they neglect to claim the inflation adjustment that tax laws allow 
D)  more; because the inflation adjustments in tax laws overcompensate for inflation 
E)  more; if much of their calculated profits from selling assets was due to inflation 
A)  less; because tax laws do not typically account for inflation 
B)  less; because inflation creates the opportunity for a tax write-off 
C)  more; if they neglect to claim the inflation adjustment that tax laws allow 
D)  more; because the inflation adjustments in tax laws overcompensate for inflation 
E)  more; if much of their calculated profits from selling assets was due to inflation

Question 17

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 18

The drop in the buying power of an ounce of gold in sixteenth-century Europe was due to

Accepted Answer

A)  gold being imported from the New World. 
B)  silver becoming more popular than gold as a medium of exchange. 
C)  hoarding of gold by the French government. 
D)  a decline in the purity of the gold being circulated. 
E)  laws banning the use of gold in commercial transactions. 
A)  gold being imported from the New World. 
B)  silver becoming more popular than gold as a medium of exchange. 
C)  hoarding of gold by the French government. 
D)  a decline in the purity of the gold being circulated. 
E)  laws banning the use of gold in commercial transactions.

Question 19

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 20

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

According to the July 2015 consumer price index CPI), the top three consumer expenditure categories are, respectively,

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

Your entertainment price index EPI) was computed based on three goods: movie tickets, popcorn, and limeade. If you change the quantity of these goods from this year to next year and the prices of two of the three goods increase while the other price falls, then your EPI

Typically the consumer price index CPI) is calculated by checking the prices of

To convert a current price of a product to its price in the past, we would take the current price of a product and

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?

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

If your real wage rose but your nominal wage fell, this would imply that

The Bureau of Labor Statistics releases consumer price index CPI) data

It has been shown that increases in the money supply are directly related to the rate of inflation. If the previous statement is true, then

If the price of industrial plastic injection molding machines rose by 20 percent and the price of oranges fell by 20 percent, then

Inflation occurs when

A one-pound bag of Oreos cost 32 cents in 1922 and $2.99 in 2016. Although the 2016 price is higher, there is a very real sense in which Oreos were cheaper in 2016 than in 1922. Explain, making reference to price levels.

Consider the equation % $\triangle$ M + % $\triangle$ V $\approx$ % $\triangle$ P + % $\triangle$ Y. If there is no change in real GDP( % $\triangle$ Y = 0) and there is no change in the money supply (% $\triangle$ M = 0), what would have to happen for there to be inflation (% $\triangle$ P > 0)?

Inflation sometimes causes people to pay __capital gains tax than they ought to, _.

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

The drop in the buying power of an ounce of gold in sixteenth-century Europe was due to

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

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

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

According to the July 2015 consumer price index CPI), the top three consumer expenditure categories are, respectively,

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

Your entertainment price index EPI) was computed based on three goods: movie tickets, popcorn, and limeade. If you change the quantity of these goods from this year to next year and the prices of two of the three goods increase while the other price falls, then your EPI

Typically the consumer price index CPI) is calculated by checking the prices of

To convert a current price of a product to its price in the past, we would take the current price of a product and

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?

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

If your real wage rose but your nominal wage fell, this would imply that

The Bureau of Labor Statistics releases consumer price index CPI) data

It has been shown that increases in the money supply are directly related to the rate of inflation. If the previous statement is true, then

If the price of industrial plastic injection molding machines rose by 20 percent and the price of oranges fell by 20 percent, then

Inflation occurs when

A one-pound bag of Oreos cost 32 cents in 1922 and $2.99 in 2016. Although the 2016 price is higher, there is a very real sense in which Oreos were cheaper in 2016 than in 1922. Explain, making reference to price levels.

Inflation sometimes causes people to pay ______capital gains tax than they ought to, _____.

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

The drop in the buying power of an ounce of gold in sixteenth-century Europe was due to

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

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

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

Inflation sometimes causes people to pay __capital gains tax than they ought to, _.