Question 1

In the 1970s, the government attempted to regulate prices to control inflation; this attempt was unsuccessful. The most likely reason was that

Accepted Answer

A)  it increased menu costs. 
B)  it created future price certainty. 
C)  it removed relative price signals for those items that had actual increases in demand that were not due to inflation. 
D)  it created money illusion. 
E)  the Watergate break-in destroyed Americans' faith in the government. 
A)  it increased menu costs. 
B)  it created future price certainty. 
C)  it removed relative price signals for those items that had actual increases in demand that were not due to inflation. 
D)  it created money illusion. 
E)  the Watergate break-in destroyed Americans' faith in the government.

Question 2

If everyone buys the same goods every year and the price of housing rises by 38 percent, it is

Accepted Answer

A)  certain the consumer price index CPI) has increased, and if your nominal wage has risen by less than 38 percent, your real wage has fallen. 
B)  certain the consumer price index CPI) has increased, and if your nominal wage has risen by more than 38 percent, your real wage has risen. 
C)  possible that the consumer price index CPI) has increased, but it is certain your real wage has fallen. 
D)  possible that the consumer price index CPI) has increased; however, it is certain your real wage has risen if, and only if, your nominal wage increased by more than 19 percent because housing accounts for exactly 50 percent of the CPI. 
E)  not possible to tell what happened to the consumer price index CPI) because other than for housing, we do not know what happened to the prices of any of the other goods. 
A)  certain the consumer price index CPI) has increased, and if your nominal wage has risen by less than 38 percent, your real wage has fallen. 
B)  certain the consumer price index CPI) has increased, and if your nominal wage has risen by more than 38 percent, your real wage has risen. 
C)  possible that the consumer price index CPI) has increased, but it is certain your real wage has fallen. 
D)  possible that the consumer price index CPI) has increased; however, it is certain your real wage has risen if, and only if, your nominal wage increased by more than 19 percent because housing accounts for exactly 50 percent of the CPI. 
E)  not possible to tell what happened to the consumer price index CPI) because other than for housing, we do not know what happened to the prices of any of the other goods.

Question 3

Describe the methodology of finding the consumer price index CPI).

Accepted Answer

The prices of 8,000 goods and services a

Question 4

In Nation A, the price index rises from 110 to 120 in a particular year. In the same year, the price level rises from 120 to 130 in Nation B. This means

Accepted Answer

A)  inflation in both nations is 10 percent. 
B)  Nation B suffers from hyperinflation. 
C)  both nations suffer from hyperinflation. 
D)  Nation A is experiencing inflation but Nation B is experiencing deflation. 
E)  Nation A is experiencing inflation of less than 9.1 percent and Nation B is experiencing inflation of less than 8.4 percent. 
A)  inflation in both nations is 10 percent. 
B)  Nation B suffers from hyperinflation. 
C)  both nations suffer from hyperinflation. 
D)  Nation A is experiencing inflation but Nation B is experiencing deflation. 
E)  Nation A is experiencing inflation of less than 9.1 percent and Nation B is experiencing inflation of less than 8.4 percent.

Question 5

You know that the consumer price index CPI) at the beginning of this year was 250 and the rate of inflation was 14 percent; this would mean the

Accepted Answer

A)  price of cat food increased by exactly 14 percent. 
B)  CPI at the beginning of last year was 215. 
C)  price of dog food probably fell. 
D)  CPI at the end of the year was 285. 
E)  rate of inflation next year will be more than 14 percent. 
A)  price of cat food increased by exactly 14 percent. 
B)  CPI at the beginning of last year was 215. 
C)  price of dog food probably fell. 
D)  CPI at the end of the year was 285. 
E)  rate of inflation next year will be more than 14 percent.

Question 6

The value of the consumer price index CPI) is best described as the

Accepted Answer

A)  current year prices to base year prices, holding the market basket content constant. 
B)  current year prices to base year prices, including changes in the content of the market basket. 
C)  base year prices to current year prices, holding the market basket content constant. 
D)  base year prices to current year prices, including changes in the content of the market basket. 
E)  current year quantity to base year quantity, including changes in the prices of the market basket. 
A)  current year prices to base year prices, holding the market basket content constant. 
B)  current year prices to base year prices, including changes in the content of the market basket. 
C)  base year prices to current year prices, holding the market basket content constant. 
D)  base year prices to current year prices, including changes in the content of the market basket. 
E)  current year quantity to base year quantity, including changes in the prices of the market basket.

Question 7

Refer to the following figure to answer the next four questions:
  
-Based on the figure, one could correctly state that

Accepted Answer

A)  typically, U.S. inflation was greater than E.U. inflation, with some very brief exceptions. 
B)  typically, E.U. inflation was greater than U.S. inflation, with some very brief exceptions. 
C)  there is no consistent relationship between U.S. and E.U. inflation. 
D)  typically, U.S. and E.U. inflation move together, but E.U. inflation had a much larger variance than that experienced in the United States. 
E)  typically, U.S. and E.U. inflation move in opposite directions and U.S. inflation had a much larger variance than that experienced by the European Union. 
A)  typically, U.S. inflation was greater than E.U. inflation, with some very brief exceptions. 
B)  typically, E.U. inflation was greater than U.S. inflation, with some very brief exceptions. 
C)  there is no consistent relationship between U.S. and E.U. inflation. 
D)  typically, U.S. and E.U. inflation move together, but E.U. inflation had a much larger variance than that experienced in the United States. 
E)  typically, U.S. and E.U. inflation move in opposite directions and U.S. inflation had a much larger variance than that experienced by the European Union.

Question 8

If the price of a typical market basket of goods increased from about $20 in 1960 to $200 in early 2012, then it

Accepted Answer

A)  must not have contained the same goods in both periods. 
B)  rose at a 100 percent rate from 1960 until early 2012. 
C)  rose at a 10 percent rate per year from 1960 until early 2012. 
D)  rose by 10-fold from 1960 until early 2012. 
E)  rose by 40-fold from 1960 until early 2012. 
A)  must not have contained the same goods in both periods. 
B)  rose at a 100 percent rate from 1960 until early 2012. 
C)  rose at a 10 percent rate per year from 1960 until early 2012. 
D)  rose by 10-fold from 1960 until early 2012. 
E)  rose by 40-fold from 1960 until early 2012.

Question 9

If your nominal wage rises but you think that it automatically means your real wage rose, then you are

Accepted Answer

A)  suffering from money illusion. 
B)  experiencing the substitution effect. 
C)  suffering from the heterogeneity illusion effect. 
D)  experiencing the income effect. 
E)  suffering from the price confusion problem. 
A)  suffering from money illusion. 
B)  experiencing the substitution effect. 
C)  suffering from the heterogeneity illusion effect. 
D)  experiencing the income effect. 
E)  suffering from the price confusion problem.

Question 10

It is rare when prices fall in modern times. However, it is likely that they would fall during severe recessions. In what year is this most likely to have occurred?

Accepted Answer

A)  2005 
B)  2009 
C)  2011 
D)  2012 
E)  2003 
A)  2005 
B)  2009 
C)  2011 
D)  2012 
E)  2003

In the 1970s, the government attempted to regulate prices to control inflation; this attempt was unsuccessful. The most likely reason was that

If everyone buys the same goods every year and the price of housing rises by 38 percent, it is

Describe the methodology of finding the consumer price index CPI).

In Nation A, the price index rises from 110 to 120 in a particular year. In the same year, the price level rises from 120 to 130 in Nation B. This means

You know that the consumer price index CPI) at the beginning of this year was 250 and the rate of inflation was 14 percent; this would mean the

The value of the consumer price index CPI) is best described as the

Refer to the following figure to answer the next four questions: -Based on the figure, one could correctly state that

If the price of a typical market basket of goods increased from about $20 in 1960 to $200 in early 2012, then it

If your nominal wage rises but you think that it automatically means your real wage rose, then you are

It is rare when prices fall in modern times. However, it is likely that they would fall during severe recessions. In what year is this most likely to have occurred?

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

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Exam 8: The Price Level and Inflation

In the 1970s, the government attempted to regulate prices to control inflation; this attempt was unsuccessful. The most likely reason was that

If everyone buys the same goods every year and the price of housing rises by 38 percent, it is

Describe the methodology of finding the consumer price index CPI).

In Nation A, the price index rises from 110 to 120 in a particular year. In the same year, the price level rises from 120 to 130 in Nation B. This means

You know that the consumer price index CPI) at the beginning of this year was 250 and the rate of inflation was 14 percent; this would mean the

The value of the consumer price index CPI) is best described as the

Refer to the following figure to answer the next four questions: -Based on the figure, one could correctly state that

If the price of a typical market basket of goods increased from about $20 in 1960 to $200 in early 2012, then it

If your nominal wage rises but you think that it automatically means your real wage rose, then you are

It is rare when prices fall in modern times. However, it is likely that they would fall during severe recessions. In what year is this most likely to have occurred?

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