Question 1

If the Consumer Price Index was 102.2 in 2007 and 104.9 in 2008,we can conclude that

Accepted Answer

A)  the prices of all consumer goods were higher in 2008 than in 2007 
B)  the prices of all consumer goods were lower in 2008 than in 2007 
C)  the price level fell from 2007 to 2008 
D)  the price level rose from 2007 to 2008 
E)  the base year was 2001 
A)  the prices of all consumer goods were higher in 2008 than in 2007 
B)  the prices of all consumer goods were lower in 2008 than in 2007 
C)  the price level fell from 2007 to 2008 
D)  the price level rose from 2007 to 2008 
E)  the base year was 2001

Question 2

Which of the following are considered sources of bias in the CPI?

Accepted Answer

A)  Prices changing too rapidly;substitution,new technologies;and quality changes. 
B)  Prices changing too rapidly;substitution;quality changes;and growth in discounting. 
C)  Quality changes;new technologies;prices changing too rapidly;and growth in discounting. 
D)  Substitution;new technologies;prices changing too rapidly;and growth in discounting. 
E)  Quality changes;new technologies;substitution;and growth in discounting. 
A)  Prices changing too rapidly;substitution,new technologies;and quality changes. 
B)  Prices changing too rapidly;substitution;quality changes;and growth in discounting. 
C)  Quality changes;new technologies;prices changing too rapidly;and growth in discounting. 
D)  Substitution;new technologies;prices changing too rapidly;and growth in discounting. 
E)  Quality changes;new technologies;substitution;and growth in discounting.

Question 3

Improvements in the quality of consumer goods and services over time

Accepted Answer

A)  cause inflation as measured by the CPI to overstate the actual inflation rate 
B)  cause inflation as measured by the CPI to understate the actual inflation rate 
C)  are accounted for in the CPI 
D)  are insignificant and thus would not affect the CPI even if accounted for 
E)  improve the accuracy and consistency of the market basket 
A)  cause inflation as measured by the CPI to overstate the actual inflation rate 
B)  cause inflation as measured by the CPI to understate the actual inflation rate 
C)  are accounted for in the CPI 
D)  are insignificant and thus would not affect the CPI even if accounted for 
E)  improve the accuracy and consistency of the market basket

Question 4

The Consumer Price Index (CPI)is a weighted average of all the prices paid by households for goods and services.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following would be included in the GDP Price Index,but not the Consumer Price Index?

Accepted Answer

A)  The price of a pair of shoes 
B)  The price of coffee 
C)  The price of a used car 
D)  The price of a bar of soap 
E)  The price of an aircraft carrier 
A)  The price of a pair of shoes 
B)  The price of coffee 
C)  The price of a used car 
D)  The price of a bar of soap 
E)  The price of an aircraft carrier

Question 6

Suppose the economy consists of two distinct groups: wage earners and goods sellers.If the price level increases by 30 percent and real wages increase by 30 percent,

Accepted Answer

A)  there will be no redistribution of purchasing power between goods sellers and wage earners 
B)  purchasing power will be redistributed from wage earners to goods sellers 
C)  purchasing power will be redistributed from goods sellers to wage earners 
D)  nominal wages will increase by 90 percent 
E)  nominal wages will decrease by 60 percent 
A)  there will be no redistribution of purchasing power between goods sellers and wage earners 
B)  purchasing power will be redistributed from wage earners to goods sellers 
C)  purchasing power will be redistributed from goods sellers to wage earners 
D)  nominal wages will increase by 90 percent 
E)  nominal wages will decrease by 60 percent

Question 7

A real variable is

Accepted Answer

A)  measured in terms of after-tax dollars 
B)  measured in terms of dollars and not foreign currency 
C)  measured in nominal terms 
D)  measured in terms of current dollars 
E)  measured in terms of purchasing power 
A)  measured in terms of after-tax dollars 
B)  measured in terms of dollars and not foreign currency 
C)  measured in nominal terms 
D)  measured in terms of current dollars 
E)  measured in terms of purchasing power

Question 8

Your friend Shahla argues that inflation is bad for the economy because it lowers everyone's purchasing power.How would an economist respond to Shahla's statement?

Accepted Answer

A)  Her statement is true. 
B)  Her statement is false because inflation redistributes income but does not change the average level of income in the economy. 
C)  Her statement is true when everyone's nominal income changes by the same amount. 
D)  Her statement is true when wages and benefits are not indexed to the CPI. 
E)  Her statement is true only in a closed economy. 
A)  Her statement is true. 
B)  Her statement is false because inflation redistributes income but does not change the average level of income in the economy. 
C)  Her statement is true when everyone's nominal income changes by the same amount. 
D)  Her statement is true when wages and benefits are not indexed to the CPI. 
E)  Her statement is true only in a closed economy.

Question 9

Assume you are lending money to a friend for a year and want to earn real interest of 5 percent on the loan.If you believe the inflation rate the next year will be 3 percent,you should charge your friend a nominal interest rate of

Accepted Answer

A)  5 percent 
B)  8 percent 
C)  3 percent 
D)  15 percent 
E)  whatever he will pay 
A)  5 percent 
B)  8 percent 
C)  3 percent 
D)  15 percent 
E)  whatever he will pay

Question 10

If you lend money at a nominal interest rate of 9 percent and the inflation rate is 1 percent,what real interest rate will you earn?

Accepted Answer

A)  3 percent 
B)  4 percent 
C)  8 percent 
D)  12 percent 
E)  15 percent 
A)  3 percent 
B)  4 percent 
C)  8 percent 
D)  12 percent 
E)  15 percent

Question 11

Substitution bias

Accepted Answer

A)  is one factor that causes the Consumer Price Index to underestimate the inflation rate 
B)  is caused by the poor quality of many products 
C)  is one of the primary causes of inflation 
D)  involves consumer behavior that helps explain why the Consumer Price Index overestimates the inflation rate 
E)  suggests most economists substitute other price indices for the flawed Consumer Price Index 
A)  is one factor that causes the Consumer Price Index to underestimate the inflation rate 
B)  is caused by the poor quality of many products 
C)  is one of the primary causes of inflation 
D)  involves consumer behavior that helps explain why the Consumer Price Index overestimates the inflation rate 
E)  suggests most economists substitute other price indices for the flawed Consumer Price Index

Question 12

If inflation is higher than anticipated and benefits are not indexed,which group loses purchasing power?

Accepted Answer

A)  Borrowers and lenders 
B)  Lenders and retirees 
C)  Borrowers and retirees 
D)  Only borrowers 
E)  Only lenders 
A)  Borrowers and lenders 
B)  Lenders and retirees 
C)  Borrowers and retirees 
D)  Only borrowers 
E)  Only lenders

Question 13

Suppose a local union has a contract that calls for the nominal wage to increase by 5 percent plus 100 percent of any increase in the CPI.If the CPI increases by 4% and there is a 1% positive bias in the inflation rate,by how much would nominal wages unnecessarily increase?

Accepted Answer

A)  9 percent 
B)  1 percent 
C)  5 percent 
D)  3 percent 
E)  4 percent 
A)  9 percent 
B)  1 percent 
C)  5 percent 
D)  3 percent 
E)  4 percent

Question 14

Suppose you recently took a pay cut of 2% at your job.You expect the price level to fall by 3% during this year.What would be the impact on your real wage?

Accepted Answer

A)  The real wage would fall by 3% 
B)  The real wage would rise by 3% 
C)  The real wage would fall by 1% 
D)  The real wage would rise by 1% 
E)  The real wage would be unchanged 
A)  The real wage would fall by 3% 
B)  The real wage would rise by 3% 
C)  The real wage would fall by 1% 
D)  The real wage would rise by 1% 
E)  The real wage would be unchanged

Question 15

Use the table below to calculate the CPI in 2007.Assume the base year is 2006 and the cost of the market basket in the base year is $200.
 
The CPI in 2007 is

Accepted Answer

A)  100 
B)  126 
C)  115 
D)  230 
E)  200 
A)  100 
B)  126 
C)  115 
D)  230 
E)  200

Question 16

If prices (as measured by the CPI)fell by one-half and nominal wages fell by one-third,what would happen to real wages?

Accepted Answer

A)  They would fall by one-third 
B)  They would remain unchanged 
C)  They would decrease 
D)  They would increase 
E)  They would fall by one-half 
A)  They would fall by one-third 
B)  They would remain unchanged 
C)  They would decrease 
D)  They would increase 
E)  They would fall by one-half

Question 17

If a lender charged a 4 percent nominal interest rate and the expected inflation rate is 1 percent,what is the difference between the real rate the lender received and the real rate the lender expected when actual inflation ended up being 1 percent?

Accepted Answer

A)  2 percent 
B)  4 percent 
C)  -4 percent 
D)  1 percent 
E)  0 percent 
A)  2 percent 
B)  4 percent 
C)  -4 percent 
D)  1 percent 
E)  0 percent

Question 18

The prices of which of the following goods would be included in the Consumer Price Index?

Accepted Answer

A)  Fighter planes 
B)  Iron ore 
C)  Tennis shoes 
D)  Firefighters' services 
E)  IBM stock 
A)  Fighter planes 
B)  Iron ore 
C)  Tennis shoes 
D)  Firefighters' services 
E)  IBM stock

Question 19

The Bureau of :Labor Statistics has been compiling an experimental CPI for the elderly,called CPI-E.

Accepted Answer

A) True 
 B)False

Question 20

If the price of used automobiles increased dramatically relative to all other prices,and the demand for all goods remained the same,which of the following would most likely occur?

Accepted Answer

A)  The GDP price index would decrease less than the CPI. 
B)  Both the GDP price index and the CPI would decrease. 
C)  The GDP price index would increase more than the CPI. 
D)  The CPI would increase more than the GDP price index. 
E)  Both the GDP price index and the CPI would increase by the same amount. 
A)  The GDP price index would decrease less than the CPI. 
B)  Both the GDP price index and the CPI would decrease. 
C)  The GDP price index would increase more than the CPI. 
D)  The CPI would increase more than the GDP price index. 
E)  Both the GDP price index and the CPI would increase by the same amount.

If the Consumer Price Index was 102.2 in 2007 and 104.9 in 2008,we can conclude that

Which of the following are considered sources of bias in the CPI?

Improvements in the quality of consumer goods and services over time

The Consumer Price Index (CPI)is a weighted average of all the prices paid by households for goods and services.

Which of the following would be included in the GDP Price Index,but not the Consumer Price Index?

Suppose the economy consists of two distinct groups: wage earners and goods sellers.If the price level increases by 30 percent and real wages increase by 30 percent,

A real variable is

Your friend Shahla argues that inflation is bad for the economy because it lowers everyone's purchasing power.How would an economist respond to Shahla's statement?

Assume you are lending money to a friend for a year and want to earn real interest of 5 percent on the loan.If you believe the inflation rate the next year will be 3 percent,you should charge your friend a nominal interest rate of

If you lend money at a nominal interest rate of 9 percent and the inflation rate is 1 percent,what real interest rate will you earn?

Substitution bias

If inflation is higher than anticipated and benefits are not indexed,which group loses purchasing power?

Suppose a local union has a contract that calls for the nominal wage to increase by 5 percent plus 100 percent of any increase in the CPI.If the CPI increases by 4% and there is a 1% positive bias in the inflation rate,by how much would nominal wages unnecessarily increase?

Suppose you recently took a pay cut of 2% at your job.You expect the price level to fall by 3% during this year.What would be the impact on your real wage?

Use the table below to calculate the CPI in 2007.Assume the base year is 2006 and the cost of the market basket in the base year is $200. The CPI in 2007 is

If prices (as measured by the CPI)fell by one-half and nominal wages fell by one-third,what would happen to real wages?

If a lender charged a 4 percent nominal interest rate and the expected inflation rate is 1 percent,what is the difference between the real rate the lender received and the real rate the lender expected when actual inflation ended up being 1 percent?

The prices of which of the following goods would be included in the Consumer Price Index?

The Bureau of :Labor Statistics has been compiling an experimental CPI for the elderly,called CPI-E.

If the price of used automobiles increased dramatically relative to all other prices,and the demand for all goods remained the same,which of the following would most likely occur?

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

If the Consumer Price Index was 102.2 in 2007 and 104.9 in 2008,we can conclude that

Which of the following are considered sources of bias in the CPI?

Improvements in the quality of consumer goods and services over time

The Consumer Price Index (CPI)is a weighted average of all the prices paid by households for goods and services.

Which of the following would be included in the GDP Price Index,but not the Consumer Price Index?

Suppose the economy consists of two distinct groups: wage earners and goods sellers.If the price level increases by 30 percent and real wages increase by 30 percent,

A real variable is

Your friend Shahla argues that inflation is bad for the economy because it lowers everyone's purchasing power.How would an economist respond to Shahla's statement?

Assume you are lending money to a friend for a year and want to earn real interest of 5 percent on the loan.If you believe the inflation rate the next year will be 3 percent,you should charge your friend a nominal interest rate of

If you lend money at a nominal interest rate of 9 percent and the inflation rate is 1 percent,what real interest rate will you earn?

Substitution bias

If inflation is higher than anticipated and benefits are not indexed,which group loses purchasing power?

Suppose a local union has a contract that calls for the nominal wage to increase by 5 percent plus 100 percent of any increase in the CPI.If the CPI increases by 4% and there is a 1% positive bias in the inflation rate,by how much would nominal wages unnecessarily increase?

Suppose you recently took a pay cut of 2% at your job.You expect the price level to fall by 3% during this year.What would be the impact on your real wage?

Use the table below to calculate the CPI in 2007.Assume the base year is 2006 and the cost of the market basket in the base year is $200. The CPI in 2007 is

If prices (as measured by the CPI)fell by one-half and nominal wages fell by one-third,what would happen to real wages?

If a lender charged a 4 percent nominal interest rate and the expected inflation rate is 1 percent,what is the difference between the real rate the lender received and the real rate the lender expected when actual inflation ended up being 1 percent?

The prices of which of the following goods would be included in the Consumer Price Index?

The Bureau of :Labor Statistics has been compiling an experimental CPI for the elderly,called CPI-E.

If the price of used automobiles increased dramatically relative to all other prices,and the demand for all goods remained the same,which of the following would most likely occur?

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