Question 1

The real wage is the wage:

Accepted Answer

A) measured in current dollars. 
B) required to maintain a minimum standard of living. 
C) employers are required to pay workers. 
D) measured in terms of purchasing power. 
A) measured in current dollars. 
B) required to maintain a minimum standard of living. 
C) employers are required to pay workers. 
D) measured in terms of purchasing power. D

Question 2

If the Boskin Commission's conclusion is correct, then the CPI ______ the "true" inflation and improvements in living standards over time has been _____.

Accepted Answer

A) understates; overestimated 
B) understates; underestimated 
C) overstates; underestimated 
D) measures; overestimated 
A) understates; overestimated 
B) understates; underestimated 
C) overstates; underestimated 
D) measures; overestimated C

Question 3

The extra costs incurred to avoid holding cash when there is inflation are called the:

Accepted Answer

A) average costs of inflation. 
B) consumer price index costs. 
C) external costs. 
D) shoe leather costs. 
A) average costs of inflation. 
B) consumer price index costs. 
C) external costs. 
D) shoe leather costs. D

Question 4

All of the following are real quantities except the:

Accepted Answer

A) number of new cars produced in one year. 
B) tons of steel shipped to South America. 
C) millions of computer chips shipped to computer makers. 
D) billions of dollars invested in stocks. 
A) number of new cars produced in one year. 
B) tons of steel shipped to South America. 
C) millions of computer chips shipped to computer makers. 
D) billions of dollars invested in stocks.

Question 5

A measure of overall prices at a particular point in time is called:

Accepted Answer

A) a relative price. 
B) the price level. 
C) a real price. 
D) inflation. 
A) a relative price. 
B) the price level. 
C) a real price. 
D) inflation.

Question 6

The consumer price index for the current year measures the cost of a standard basket in the ______ year relative to the cost of the same basket in the ______ year.

Accepted Answer

A) current; base 
B) current; current 
C) base; index 
D) base; current 
A) current; base 
B) current; current 
C) base; index 
D) base; current

Question 7

If workers received a 5 percent wage increase and the rate of inflation was 10 percent, then their real wage:

Accepted Answer

A) increased. 
B) decreased. 
C) remained constant. 
D) equaled the nominal wage. 
A) increased. 
B) decreased. 
C) remained constant. 
D) equaled the nominal wage.

Question 8

The nominal interest rate is the:

Accepted Answer

A) annual percentage increase in the dollar value of a financial asset. 
B) annual percentage increase in the purchasing power of a financial asset. 
C) real rate of return on an asset. 
D) the real interest rate minus the inflation rate. 
A) annual percentage increase in the dollar value of a financial asset. 
B) annual percentage increase in the purchasing power of a financial asset. 
C) real rate of return on an asset. 
D) the real interest rate minus the inflation rate.

Question 9

To compare the purchasing power of nominal wages in two different years, one must:

Accepted Answer

A) compare the nominal values. 
B) deflate both quantities by a common price index. 
C) increase both quantities by the same percentage increase in a price index. 
D) adjust both quantities by the real interest rate. 
A) compare the nominal values. 
B) deflate both quantities by a common price index. 
C) increase both quantities by the same percentage increase in a price index. 
D) adjust both quantities by the real interest rate.

Question 10

The situation when the price of most goods and services are falling over time is called:

Accepted Answer

A) inflation. 
B) disinflation. 
C) a boom. 
D) deflation. 
A) inflation. 
B) disinflation. 
C) a boom. 
D) deflation.

Question 11

Over time, the core rate of inflation should be ______ than the general rate of inflation.

Accepted Answer

A) more stable 
B) less stable 
C) higher 
D) less meaningful 
A) more stable 
B) less stable 
C) higher 
D) less meaningful

Question 12

Suppose manufacturers introduce a new model car to replace a car currently included in the CPI basket.The price of the new car is 10 percent higher than the discontinued model, but the new car has additional safety features and amenities.In this situation the CPI will tend to ______ inflation as a result of ______ bias.

Accepted Answer

A) overstate; substitution 
B) understate; quality adjustment 
C) accurately measure; substitution 
D) overstate; quality adjustment 
A) overstate; substitution 
B) understate; quality adjustment 
C) accurately measure; substitution 
D) overstate; quality adjustment

Question 13

The "true" costs of inflation to an economy include all of the following except:

Accepted Answer

A) shoe-leather costs. 
B) higher relative prices. 
C) noise in the price system. 
D) unexpected redistribution of wealth. 
A) shoe-leather costs. 
B) higher relative prices. 
C) noise in the price system. 
D) unexpected redistribution of wealth.

Question 14

The wage paid to workers measured in terms of real purchasing power is called the:

Accepted Answer

A) nominal wage. 
B) cost of living. 
C) minimum wage. 
D) real wage. 
A) nominal wage. 
B) cost of living. 
C) minimum wage. 
D) real wage.

Question 15

A nominal value is measured:

Accepted Answer

A) in physical terms. 
B) in terms of current dollar value. 
C) using the consumer price index. 
D) by indexing. 
A) in physical terms. 
B) in terms of current dollar value. 
C) using the consumer price index. 
D) by indexing.

Question 16

The price of a gallon of gasoline at the pump increased by 10 percent at the same time that the inflation rate was 5 percent.The nominal price of gasoline _____, and the real price of gasoline _____.

Accepted Answer

A) increased; also increased 
B) increased; decreased 
C) increased; did not change 
D) decreased; increased 
A) increased; also increased 
B) increased; decreased 
C) increased; did not change 
D) decreased; increased

Question 17

Inflation makes it difficult to distinguish relative price changes from changes in the general level of prices.Consequently, inflation ______ the efficiency of the market system.

Accepted Answer

A) increases 
B) decreases 
C) does not change 
D) may either increase or decrease 
A) increases 
B) decreases 
C) does not change 
D) may either increase or decrease

Question 18

A labor contract provides for a first-year wage of $10 per hour, and specifies that the real wage will rise by 3 percent in the second year of the contract.The CPI is 1.00 in the first year and 1.07 in the second year.What dollar wage must be paid in the second year?

Accepted Answer

A) $10.30 
B) $10.70 
C) $10.90 
D) $11.02 
A) $10.30 
B) $10.70 
C) $10.90 
D) $11.02

Question 19

The CPI in 1931 equaled 0.15.The CPI in 1932 equaled 0.14.The rate of inflation between 1931 and 1932 was ______ percent.

Accepted Answer

A) -7.1 
B) -6.7 
C) 1.4 
D) 6.7 
A) -7.1 
B) -6.7 
C) 1.4 
D) 6.7

Question 20

The annual increase in the dollar value of a financial asset is called the:

Accepted Answer

A) real rate of return. 
B) inflation rate. 
C) real interest rate. 
D) nominal interest rate. 
A) real rate of return. 
B) inflation rate. 
C) real interest rate. 
D) nominal interest rate.

The real wage is the wage:

If the Boskin Commission's conclusion is correct, then the CPI __ the "true" inflation and improvements in living standards over time has been _.

The extra costs incurred to avoid holding cash when there is inflation are called the:

All of the following are real quantities except the:

A measure of overall prices at a particular point in time is called:

The consumer price index for the current year measures the cost of a standard basket in the year relative to the cost of the same basket in the year.

If workers received a 5 percent wage increase and the rate of inflation was 10 percent, then their real wage:

The nominal interest rate is the:

To compare the purchasing power of nominal wages in two different years, one must:

The situation when the price of most goods and services are falling over time is called:

Over time, the core rate of inflation should be ______ than the general rate of inflation.

The "true" costs of inflation to an economy include all of the following except:

The wage paid to workers measured in terms of real purchasing power is called the:

A nominal value is measured:

The price of a gallon of gasoline at the pump increased by 10 percent at the same time that the inflation rate was 5 percent.The nominal price of gasoline _, and the real price of gasoline _.

Inflation makes it difficult to distinguish relative price changes from changes in the general level of prices.Consequently, inflation ______ the efficiency of the market system.

A labor contract provides for a first-year wage of $10 per hour, and specifies that the real wage will rise by 3 percent in the second year of the contract.The CPI is 1.00 in the first year and 1.07 in the second year.What dollar wage must be paid in the second year?

The CPI in 1931 equaled 0.15.The CPI in 1932 equaled 0.14.The rate of inflation between 1931 and 1932 was ______ percent.

The annual increase in the dollar value of a financial asset is called the:

Thinking Like an Economist

Comparative Advantage

Spending, Income, and GDP

Wages and Unemployment

Economic Growth

Saving, Capital Formation, and Financial Markets

Money, Prices, and the Financial System

Short-Term Economic Fluctuations

Spending, Output, and Fiscal Policy

Monetary Policy and the Federal Reserve

Aggregate Demand, Aggregate Supply, and Business Cycles

Macroeconomic Policy

Exchange Rates, International Trade, and Capital Flows

Filters

Exam 5: Inflation and the Price Level

The real wage is the wage:

If the Boskin Commission's conclusion is correct, then the CPI ______ the "true" inflation and improvements in living standards over time has been _____.

The extra costs incurred to avoid holding cash when there is inflation are called the:

All of the following are real quantities except the:

A measure of overall prices at a particular point in time is called:

The consumer price index for the current year measures the cost of a standard basket in the ______ year relative to the cost of the same basket in the ______ year.

If workers received a 5 percent wage increase and the rate of inflation was 10 percent, then their real wage:

The nominal interest rate is the:

To compare the purchasing power of nominal wages in two different years, one must:

The situation when the price of most goods and services are falling over time is called:

Over time, the core rate of inflation should be ______ than the general rate of inflation.

The "true" costs of inflation to an economy include all of the following except:

The wage paid to workers measured in terms of real purchasing power is called the:

A nominal value is measured:

The price of a gallon of gasoline at the pump increased by 10 percent at the same time that the inflation rate was 5 percent.The nominal price of gasoline _____, and the real price of gasoline _____.

Inflation makes it difficult to distinguish relative price changes from changes in the general level of prices.Consequently, inflation ______ the efficiency of the market system.

A labor contract provides for a first-year wage of $10 per hour, and specifies that the real wage will rise by 3 percent in the second year of the contract.The CPI is 1.00 in the first year and 1.07 in the second year.What dollar wage must be paid in the second year?

The CPI in 1931 equaled 0.15.The CPI in 1932 equaled 0.14.The rate of inflation between 1931 and 1932 was ______ percent.

The annual increase in the dollar value of a financial asset is called the:

Thinking Like an Economist

Comparative Advantage

Spending, Income, and GDP

Wages and Unemployment

Economic Growth

Saving, Capital Formation, and Financial Markets

Money, Prices, and the Financial System

Short-Term Economic Fluctuations

Spending, Output, and Fiscal Policy

Monetary Policy and the Federal Reserve

Aggregate Demand, Aggregate Supply, and Business Cycles

Macroeconomic Policy

Exchange Rates, International Trade, and Capital Flows

Filters

If the Boskin Commission's conclusion is correct, then the CPI __ the "true" inflation and improvements in living standards over time has been _.

The consumer price index for the current year measures the cost of a standard basket in the year relative to the cost of the same basket in the year.

The price of a gallon of gasoline at the pump increased by 10 percent at the same time that the inflation rate was 5 percent.The nominal price of gasoline _, and the real price of gasoline _.