Question 1

Which of the following statements about unanticipated inflation is true?

Accepted Answer

A)  It reduces average purchasing power in the economy. 
B)  It reduces total purchasing power in the economy. 
C)  It redistributes purchasing power in the economy. 
D)  It reduces nominal wages. 
E)  Its effects are spread evenly throughout the economy so that no one gains or loses from inflation. 
A)  It reduces average purchasing power in the economy. 
B)  It reduces total purchasing power in the economy. 
C)  It redistributes purchasing power in the economy. 
D)  It reduces nominal wages. 
E)  Its effects are spread evenly throughout the economy so that no one gains or loses from inflation. C

Question 2

Suppose the Consumer Price Index (CPI)increased by 5 percent over each of the last 5 years while the GDP price index increased by 12 percent annually.Which of the following reasons could explain this difference?

Accepted Answer

A)  Police unions across the country agreed to substantial salary cuts. 
B)  Import good prices increased relative to domestic good prices. 
C)  The price of used automobiles increased substantially relative to the prices of other goods. 
D)  The price of fighter planes dropped due to increased competition in the aerospace industry. 
E)  The price of investment goods purchased by businesses increased substantially relative to the prices of all other goods. 
A)  Police unions across the country agreed to substantial salary cuts. 
B)  Import good prices increased relative to domestic good prices. 
C)  The price of used automobiles increased substantially relative to the prices of other goods. 
D)  The price of fighter planes dropped due to increased competition in the aerospace industry. 
E)  The price of investment goods purchased by businesses increased substantially relative to the prices of all other goods. E

Question 3

If the Consumer Price Index (CPI)decreases from 100 to 50 and the nominal wage decreases from $200 to $50,what is the change in the real wage in terms of the beginning year's dollars?

Accepted Answer

A)  +$200 
B)  -$100 
C)  +$50 
D)  -$200 
E)  +$250 
A)  +$200 
B)  -$100 
C)  +$50 
D)  -$200 
E)  +$250 B

Question 4

Why would workers and retirees want to have their wages and benefits indexed to the Consumer Price Index (CPI)?

Accepted Answer

A)  To lower their purchasing power during years of rising prices 
B)  To maintain their purchasing power during years of rising output 
C)  To maintain their purchasing power during years of declining output 
D)  To increase their purchasing power during years of negative inflation 
E)  To maintain their purchasing power during years of rising prices 
A)  To lower their purchasing power during years of rising prices 
B)  To maintain their purchasing power during years of rising output 
C)  To maintain their purchasing power during years of declining output 
D)  To increase their purchasing power during years of negative inflation 
E)  To maintain their purchasing power during years of rising prices

Question 5

Assume that the professors at a local college have gone without a pay increase for 4 years during a tough time.Suppose that things start to look up and the President of the college wants to make up for lost time.If the CPI in 2002 was 150 and 175 in 2006,how much will salaries have to increase to bring the faculty back up to their real income from 2002?

Accepted Answer

A)  175.0% 
B)  150.0% 
C)  25.0% 
D)  16.7% 
E)  14.3% 
A)  175.0% 
B)  150.0% 
C)  25.0% 
D)  16.7% 
E)  14.3%

Question 6

Use the table below to find the inflation rate from 2007 to 2008.
$$\begin{array} { | c | c | c | } 
\hline \text { Year } & \text { Naminal Wage (M) } & \text { CPI } \
\hline 2007 & \$ 13.33 & 113.2 \
2008 & \$ 13.00 & 110.0 \
\hline
\end{array}$$

Accepted Answer

A)  1.4% 
B)  0.6% 
C)  0% 
D)  -0.6% 
E)  -1.4% 
A)  1.4% 
B)  0.6% 
C)  0% 
D)  -0.6% 
E)  -1.4%

Question 7

An index number is important only in a relative sense -- in comparison to an index number from another period.

Accepted Answer

A) True 
 B)False

Question 8

The GDP Price Index and the Consumer Price Index measure prices of the same set of goods.

Accepted Answer

A) True 
 B)False

Question 9

In which of the following situations would a person be best off in real terms?

Accepted Answer

A)  Receiving a 10 percent increase in a nominal wage,with an 8 percent rate of inflation in the economy 
B)  Receiving a 3 percent increase in a nominal wage,with a 0 percent rate of inflation in the economy 
C)  Receiving a 4 percent increase in a nominal wage,with a 5 percent rate of inflation in the economy 
D)  Receiving no increase in a nominal wage,with a 5 percent rate of deflation in the economy 
E)  Receiving a 2 percent decrease in a nominal wage,with a 6 percent rate of deflation in the economy 
A)  Receiving a 10 percent increase in a nominal wage,with an 8 percent rate of inflation in the economy 
B)  Receiving a 3 percent increase in a nominal wage,with a 0 percent rate of inflation in the economy 
C)  Receiving a 4 percent increase in a nominal wage,with a 5 percent rate of inflation in the economy 
D)  Receiving no increase in a nominal wage,with a 5 percent rate of deflation in the economy 
E)  Receiving a 2 percent decrease in a nominal wage,with a 6 percent rate of deflation in the economy

Question 10

Which of the following prices is least likely to be included in the Consumer Price Index?

Accepted Answer

A)  The price of used bicycles 
B)  The price of a haircut 
C)  The price of imported South American grapes 
D)  The price of a steamroller 
E)  The price of a loaf of bread 
A)  The price of used bicycles 
B)  The price of a haircut 
C)  The price of imported South American grapes 
D)  The price of a steamroller 
E)  The price of a loaf of bread

Question 11

If the Consumer Price Index (CPI)increases from 100 to 125 and the nominal wage increases from $125 to $300,what is the change in the real wage?

Accepted Answer

A)  +$175 
B)  +$300 
C)  +$125 
D)  +$115 
E)  -$175 
A)  +$175 
B)  +$300 
C)  +$125 
D)  +$115 
E)  -$175

Question 12

Suppose the economy includes two distinct groups of people: wage earners and goods sellers.If the price level falls by 10 percent and nominal wages remain unchanged,

Accepted Answer

A)  there will be no redistribution of purchasing power because all wage earners in the U.S.economy receive indexed wages 
B)  income will be redistributed from wage earners to goods sellers 
C)  income will be redistributed from goods sellers to wage earners 
D)  real wages will fall by 10 percent 
E)  real wages will remain unchanged 
A)  there will be no redistribution of purchasing power because all wage earners in the U.S.economy receive indexed wages 
B)  income will be redistributed from wage earners to goods sellers 
C)  income will be redistributed from goods sellers to wage earners 
D)  real wages will fall by 10 percent 
E)  real wages will remain unchanged

Question 13

The CPI's approach is to

Accepted Answer

A)  track the cost of the CPI market basket,which is the collection of goods and services that the typical consumer buys. 
B)  track the cost of the CPI market basket,which is the collection of every good and service that is for sale in the U.S. 
C)  track the cost of housing,and food and beverage expenditures. 
D)  track the cost of the CPI market basket,which is the collection of every good that is for sale in the U.S. 
E)  track the cost of the CPI market basket,which is the collection of goods that the typical consumer buys. 
A)  track the cost of the CPI market basket,which is the collection of goods and services that the typical consumer buys. 
B)  track the cost of the CPI market basket,which is the collection of every good and service that is for sale in the U.S. 
C)  track the cost of housing,and food and beverage expenditures. 
D)  track the cost of the CPI market basket,which is the collection of every good that is for sale in the U.S. 
E)  track the cost of the CPI market basket,which is the collection of goods that the typical consumer buys.

Question 14

Inflation will generally redistribute purchasing power when

Accepted Answer

A)  it is fully expected 
B)  it is completely unexpected 
C)  it is greater than 3 percent 
D)  it is greater than 5 percent 
E)  it is greater than 10 percent 
A)  it is fully expected 
B)  it is completely unexpected 
C)  it is greater than 3 percent 
D)  it is greater than 5 percent 
E)  it is greater than 10 percent

Question 15

-Refer to Figure 7-1.Based on the figure,

Accepted Answer

A)  the price level has fallen since 1965 
B)  the price level in 1985 was lower than in 1980 
C)  the price level fell from 1980 to 1990 
D)  the price level has not fallen since 1965 
E)  the base year is 1965 
A)  the price level has fallen since 1965 
B)  the price level in 1985 was lower than in 1980 
C)  the price level fell from 1980 to 1990 
D)  the price level has not fallen since 1965 
E)  the base year is 1965

Question 16

Suppose you had the following information regarding the economy:
 
Which of the following best describes the behavior of the real wage rate?

Accepted Answer

A)  It increased from 2001 to 2002 and increased further from 2002 to 2003. 
B)  It dropped from 2001 to 2002 and then increased from 2002 to 2003. 
C)  It dropped from 2001 to 2002 and then remained the same from 2002 to 2003. 
D)  It increased from 2001 to 2002 and then dropped from 2002 to 2003. 
E)  It remained the same from 2001 to 2002 and then increased from 2002 to 2003. 
A)  It increased from 2001 to 2002 and increased further from 2002 to 2003. 
B)  It dropped from 2001 to 2002 and then increased from 2002 to 2003. 
C)  It dropped from 2001 to 2002 and then remained the same from 2002 to 2003. 
D)  It increased from 2001 to 2002 and then dropped from 2002 to 2003. 
E)  It remained the same from 2001 to 2002 and then increased from 2002 to 2003.

Question 17

Which of the following is not true about the Consumer Price Index (CPI)?

Accepted Answer

A)  The U.S.income tax system is indexed based on the CPI. 
B)  The majority of labor union contracts have wages indexed by the CPI. 
C)  The CPI can be used to transform nominal variables into real variables. 
D)  The CPI can be used to measure the inflation rate. 
E)  Social security benefits are indexed by the CPI. 
A)  The U.S.income tax system is indexed based on the CPI. 
B)  The majority of labor union contracts have wages indexed by the CPI. 
C)  The CPI can be used to transform nominal variables into real variables. 
D)  The CPI can be used to measure the inflation rate. 
E)  Social security benefits are indexed by the CPI.

Question 18

Suppose that Colleen's nominal wage rate was $20 per hour in 1998,the base year for the CPI.If the CPI in 2003 was 120.0 and her nominal wage had risen to $22 per hour,what was her real wage in 2003?

Accepted Answer

A)  $16.67 
B)  $18.33 
C)  $22.00 
D)  $26.40 
E)  her real wage for 2003 cannot be determined with the information given 
A)  $16.67 
B)  $18.33 
C)  $22.00 
D)  $26.40 
E)  her real wage for 2003 cannot be determined with the information given

Question 19

Double-digit inflation

Accepted Answer

A)  has occurred in the United States in only three of the past fifty years 
B)  has occurred throughout most of United States history 
C)  is also called creeping inflation 
D)  was the norm in the United States until the end of the Vietnam War 
E)  has not occurred in the United States since the Great Depression 
A)  has occurred in the United States in only three of the past fifty years 
B)  has occurred throughout most of United States history 
C)  is also called creeping inflation 
D)  was the norm in the United States until the end of the Vietnam War 
E)  has not occurred in the United States since the Great Depression

Question 20

Most economists believe that substitution behavior by consumers causes inflation measured by the Consumer Price Index (CPI)to overstate the true rate of inflation.

Accepted Answer

A) True 
 B)False

Which of the following statements about unanticipated inflation is true?

Suppose the Consumer Price Index (CPI)increased by 5 percent over each of the last 5 years while the GDP price index increased by 12 percent annually.Which of the following reasons could explain this difference?

If the Consumer Price Index (CPI)decreases from 100 to 50 and the nominal wage decreases from $200 to $50,what is the change in the real wage in terms of the beginning year's dollars?

Why would workers and retirees want to have their wages and benefits indexed to the Consumer Price Index (CPI)?

Use the table below to find the inflation rate from 2007 to 2008. Year Naminal Wage (M) CPI 2007 \ 13.33 113.2 2008 \ 13.00 110.0

An index number is important only in a relative sense -- in comparison to an index number from another period.

The GDP Price Index and the Consumer Price Index measure prices of the same set of goods.

In which of the following situations would a person be best off in real terms?

Which of the following prices is least likely to be included in the Consumer Price Index?

If the Consumer Price Index (CPI)increases from 100 to 125 and the nominal wage increases from $125 to $300,what is the change in the real wage?

Suppose the economy includes two distinct groups of people: wage earners and goods sellers.If the price level falls by 10 percent and nominal wages remain unchanged,

The CPI's approach is to

Inflation will generally redistribute purchasing power when

-Refer to Figure 7-1.Based on the figure,

Suppose you had the following information regarding the economy: Which of the following best describes the behavior of the real wage rate?

Which of the following is not true about the Consumer Price Index (CPI)?

Suppose that Colleen's nominal wage rate was $20 per hour in 1998,the base year for the CPI.If the CPI in 2003 was 120.0 and her nominal wage had risen to $22 per hour,what was her real wage in 2003?

Double-digit inflation

Most economists believe that substitution behavior by consumers causes inflation measured by the Consumer Price Index (CPI)to overstate the true rate of inflation.

What is Economics?

Scarcity, Choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

What Macroeconomics Tries to Explain

Production, Income, and Employment

The Classical Long run Model

Economic Growth and Rising Living Standards

Economic Fluctuations

The Short-run Macro Model

Fiscal Policy

Money, Banks, and the Federal Reserve

The Money Market and Monetary Policy

Aggregate Demand and Aggregate Supply

Inflation and Monetary Policy

Exchange Rates and Macroeconomic Policy

Filters

Exam 7: The Price Level and Inflation

Which of the following statements about unanticipated inflation is true?

Suppose the Consumer Price Index (CPI)increased by 5 percent over each of the last 5 years while the GDP price index increased by 12 percent annually.Which of the following reasons could explain this difference?

If the Consumer Price Index (CPI)decreases from 100 to 50 and the nominal wage decreases from $200 to $50,what is the change in the real wage in terms of the beginning year's dollars?

Why would workers and retirees want to have their wages and benefits indexed to the Consumer Price Index (CPI)?

Use the table below to find the inflation rate from 2007 to 2008. Year Naminal Wage (M) CPI 2007 \ 13.33 113.2 2008 \ 13.00 110.0

An index number is important only in a relative sense -- in comparison to an index number from another period.

The GDP Price Index and the Consumer Price Index measure prices of the same set of goods.

In which of the following situations would a person be best off in real terms?

Which of the following prices is least likely to be included in the Consumer Price Index?

If the Consumer Price Index (CPI)increases from 100 to 125 and the nominal wage increases from $125 to $300,what is the change in the real wage?

Suppose the economy includes two distinct groups of people: wage earners and goods sellers.If the price level falls by 10 percent and nominal wages remain unchanged,

The CPI's approach is to

Inflation will generally redistribute purchasing power when

-Refer to Figure 7-1.Based on the figure,

Suppose you had the following information regarding the economy: Which of the following best describes the behavior of the real wage rate?

Which of the following is not true about the Consumer Price Index (CPI)?

Suppose that Colleen's nominal wage rate was $20 per hour in 1998,the base year for the CPI.If the CPI in 2003 was 120.0 and her nominal wage had risen to $22 per hour,what was her real wage in 2003?

Double-digit inflation

Most economists believe that substitution behavior by consumers causes inflation measured by the Consumer Price Index (CPI)to overstate the true rate of inflation.

What is Economics?

Scarcity, Choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

What Macroeconomics Tries to Explain

Production, Income, and Employment

The Classical Long run Model

Economic Growth and Rising Living Standards

Economic Fluctuations

The Short-run Macro Model

Fiscal Policy

Money, Banks, and the Federal Reserve

The Money Market and Monetary Policy

Aggregate Demand and Aggregate Supply

Inflation and Monetary Policy

Exchange Rates and Macroeconomic Policy

Filters