Question 1

Suppose that over time,consumers used discount stores at an increasing rate,the CPI would tend to be

Accepted Answer

A)  accurate 
B)  underestimated because consumers would buy goods and services at lower prices than those collected by the BLS 
C)  underestimated because consumers would buy goods and services at higher prices than those collected by the BLS 
D)  overestimated because consumers would buy goods and services at lower prices than those collected by the BLS 
E)  overestimated because consumers would buy goods and services at higher prices than those collected by the BLS 
A)  accurate 
B)  underestimated because consumers would buy goods and services at lower prices than those collected by the BLS 
C)  underestimated because consumers would buy goods and services at higher prices than those collected by the BLS 
D)  overestimated because consumers would buy goods and services at lower prices than those collected by the BLS 
E)  overestimated because consumers would buy goods and services at higher prices than those collected by the BLS

Question 2

If inflation is correctly anticipated,in a transaction between borrowers and lenders,inflation

Accepted Answer

A)  will not reduce purchasing power of the money paid back 
B)  will redistribute purchasing power from borrowers to lenders 
C)  will not redistribute purchasing power 
D)  will redistribute purchasing power from to lenders to borrowers 
E)  cannot be taken into consideration when a loan is negotiated 
A)  will not reduce purchasing power of the money paid back 
B)  will redistribute purchasing power from borrowers to lenders 
C)  will not redistribute purchasing power 
D)  will redistribute purchasing power from to lenders to borrowers 
E)  cannot be taken into consideration when a loan is negotiated

Question 3

Most economists agree that the size of the bias in the CPI is at least

Accepted Answer

A)  0.1 percent 
B)  0.5 percent 
C)  1 percent 
D)  1.5 percent 
E)  2 percent 
A)  0.1 percent 
B)  0.5 percent 
C)  1 percent 
D)  1.5 percent 
E)  2 percent

Question 4

If you borrow money at a nominal interest rate of 5 percent and the inflation rate is 10 percent,what real interest rate will you pay?

Accepted Answer

A)  -5 percent 
B)  0.5 percent 
C)  2 percent 
D)  5 percent 
E)  10 percent 
A)  -5 percent 
B)  0.5 percent 
C)  2 percent 
D)  5 percent 
E)  10 percent

Question 5

Lorrie will receive a nominal wage increase of 10 percent this year.The inflation rate was 5 percent last year and is predicted to be 8 percent this year.If the economic forecast is correct,her real wage this year

Accepted Answer

A)  will increase by approximately 2 percent 
B)  will increase by approximately 8 percent 
C)  will increase by approximately 5 percent 
D)  will remain the same 
E)  cannot be calculated without knowing the number of dollars by which her wage increases 
A)  will increase by approximately 2 percent 
B)  will increase by approximately 8 percent 
C)  will increase by approximately 5 percent 
D)  will remain the same 
E)  cannot be calculated without knowing the number of dollars by which her wage increases

Question 6

If the prices of domestic consumer goods increased while the prices of imported consumer goods decreased,and the demand for each remained the same,which of the following would most likely occur?

Accepted Answer

A)  The GDP price index would decrease while the CPI would increase. 
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 while the CPI would increase. 
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.

Question 7

The Consumer Price Index (CPI)excludes goods imported from other countries and consumed by residents of the United States.

Accepted Answer

A) True 
 B)False

Question 8

Use the table below to calculate the CPI in 2007.Assume the base year is 2007 and the cost of the market basket in the base year is $275.50.
 
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 9

To the extent that the CPI does not accurately measure the true price level,

Accepted Answer

A)  the BLS will change the underlying market basket of goods 
B)  it is useless 
C)  it exaggerates the true cost of living 
D)  it results in underindexation of social security payments 
E)  it underestimates the true cost of living 
A)  the BLS will change the underlying market basket of goods 
B)  it is useless 
C)  it exaggerates the true cost of living 
D)  it results in underindexation of social security payments 
E)  it underestimates the true cost of living

Question 10

In which of the following situations would an individual experience an increase in real wages?

Accepted Answer

A)  Receiving a 5 percent increase in nominal wages while inflation was 6 percent 
B)  Taking a 3 percent cut in nominal wages while deflation was 4 percent 
C)  Taking a 1 percent cut in nominal wages while inflation was 1 percent 
D)  Receiving a 3 percent increase in nominal wages while inflation was 3 percent 
E)  Receiving no increase in nominal wages while inflation was 0 percent 
A)  Receiving a 5 percent increase in nominal wages while inflation was 6 percent 
B)  Taking a 3 percent cut in nominal wages while deflation was 4 percent 
C)  Taking a 1 percent cut in nominal wages while inflation was 1 percent 
D)  Receiving a 3 percent increase in nominal wages while inflation was 3 percent 
E)  Receiving no increase in nominal wages while inflation was 0 percent

Question 11

Suppose Mike agrees to borrow $100 from Renee for one year at a one-time interest payment of 5%.They both expected the inflation rate to be 2% during the one-year period.However,during that year the inflation rate was actually 1%.Which of the following has occurred?

Accepted Answer

A)  The unexpectedly low inflation rate has redistributed $1 from Mike to Renee 
B)  The unexpectedly low inflation rate has redistributed $5 from Mike to Renee 
C)  The unexpectedly high inflation rate has redistributed $1 from Mike to Renee 
D)  There have not been any redistribution costs to either party 
E)  The unexpectedly low inflation rate has redistributed $1 from Renee to Mike 
A)  The unexpectedly low inflation rate has redistributed $1 from Mike to Renee 
B)  The unexpectedly low inflation rate has redistributed $5 from Mike to Renee 
C)  The unexpectedly high inflation rate has redistributed $1 from Mike to Renee 
D)  There have not been any redistribution costs to either party 
E)  The unexpectedly low inflation rate has redistributed $1 from Renee to Mike

Question 12

The consumer price index (CPI)excludes all of the following goods and services except one.Which type of good is included in the CPI?

Accepted Answer

A)  Raw materials 
B)  Imported goods purchased by consumers 
C)  Machinery purchased by firms 
D)  Goods purchased by the government 
E)  Intermediate goods 
A)  Raw materials 
B)  Imported goods purchased by consumers 
C)  Machinery purchased by firms 
D)  Goods purchased by the government 
E)  Intermediate goods

Question 13

Which of the following would cause the real interest rate to be negative?

Accepted Answer

A)  When the nominal interest rate is greater than the inflation rate 
B)  When the nominal interest rate is greater than the rate of deflation 
C)  When the nominal interest rate is smaller than the rate of deflation 
D)  When the nominal interest rate is smaller than the inflation rate 
E)  When the nominal interest rate is equal to the inflation rate 
A)  When the nominal interest rate is greater than the inflation rate 
B)  When the nominal interest rate is greater than the rate of deflation 
C)  When the nominal interest rate is smaller than the rate of deflation 
D)  When the nominal interest rate is smaller than the inflation rate 
E)  When the nominal interest rate is equal to the inflation rate

Question 14

The index used to translate nominal GDP into real GDP is the

Accepted Answer

A)  Consumer Price Index 
B)  Wholesale Price Index 
C)  GDP Price Index 
D)  Producer Price Index 
E)  Manufacturer's Input Price Index 
A)  Consumer Price Index 
B)  Wholesale Price Index 
C)  GDP Price Index 
D)  Producer Price Index 
E)  Manufacturer's Input Price Index

Question 15

If there are no restrictions on contracts,and if all parties in the economy accurately predict the rate of inflation over the next year,then

Accepted Answer

A)  there will be no redistribution of purchasing power 
B)  purchasing power will be redistributed from wage earners to business owners 
C)  purchasing power will be redistributed from business owners to wage earners 
D)  purchasing power will be redistributed from lenders to borrowers 
E)  purchasing power will be redistributed from borrowers to lenders 
A)  there will be no redistribution of purchasing power 
B)  purchasing power will be redistributed from wage earners to business owners 
C)  purchasing power will be redistributed from business owners to wage earners 
D)  purchasing power will be redistributed from lenders to borrowers 
E)  purchasing power will be redistributed from borrowers to lenders

Question 16

Which of the following is a reason why the Consumer Price Index (CPI)is not calculated as a simple average of all prices?

Accepted Answer

A)  Some goods experience large price changes and the CPI would be too variable if computed by a simple average. 
B)  Goods differ in their importance in the average consumer's budget. 
C)  Some goods never experience price changes and the CPI would not be variable enough if computed as a simple average. 
D)  It would be difficult to compute a price index using a simple average of all prices. 
E)  Actually,the CPI is a simple average of all prices. 
A)  Some goods experience large price changes and the CPI would be too variable if computed by a simple average. 
B)  Goods differ in their importance in the average consumer's budget. 
C)  Some goods never experience price changes and the CPI would not be variable enough if computed as a simple average. 
D)  It would be difficult to compute a price index using a simple average of all prices. 
E)  Actually,the CPI is a simple average of all prices.

Question 17

The term that refers to the price level rising at a low rate is

Accepted Answer

A)  hidden inflation 
B)  creeping inflation 
C)  repressed inflation 
D)  disinflation 
E)  deflation 
A)  hidden inflation 
B)  creeping inflation 
C)  repressed inflation 
D)  disinflation 
E)  deflation

Question 18

If inflation is fully anticipated and if there are no restrictions on contracts,then inflation will not redistribute purchasing power.

Accepted Answer

A) True 
 B)False

Question 19

When a new good enters the market,the CPI

Accepted Answer

A)  accounts for the change in its price immediately. 
B)  fails to account for the impact on living standards from the good's existence. 
C)  never accounts for how the good changes in price. 
D)  accounts for the decline in the price but not for any increases. 
E)  accounts for the good only if sold in populous eastern states. 
A)  accounts for the change in its price immediately. 
B)  fails to account for the impact on living standards from the good's existence. 
C)  never accounts for how the good changes in price. 
D)  accounts for the decline in the price but not for any increases. 
E)  accounts for the good only if sold in populous eastern states.

Question 20

In 1996,an advisory committee of economists that studied the CPI found

Accepted Answer

A)  no bias in the CPI 
B)  that in a typical year the CPI overstates the inflation rate by at least 1.1 percent per year 
C)  that the CPI consistently overestimates the inflation rate by less than 1 percent per year 
D)  that the CPI typically underestimates the inflation rate 
E)  that the CPI is somewhat erratic;it occasionally underestimates and occasionally overestimates the inflation rate 
A)  no bias in the CPI 
B)  that in a typical year the CPI overstates the inflation rate by at least 1.1 percent per year 
C)  that the CPI consistently overestimates the inflation rate by less than 1 percent per year 
D)  that the CPI typically underestimates the inflation rate 
E)  that the CPI is somewhat erratic;it occasionally underestimates and occasionally overestimates the inflation rate

Suppose that over time,consumers used discount stores at an increasing rate,the CPI would tend to be

If inflation is correctly anticipated,in a transaction between borrowers and lenders,inflation

Most economists agree that the size of the bias in the CPI is at least

If you borrow money at a nominal interest rate of 5 percent and the inflation rate is 10 percent,what real interest rate will you pay?

Lorrie will receive a nominal wage increase of 10 percent this year.The inflation rate was 5 percent last year and is predicted to be 8 percent this year.If the economic forecast is correct,her real wage this year

If the prices of domestic consumer goods increased while the prices of imported consumer goods decreased,and the demand for each remained the same,which of the following would most likely occur?

The Consumer Price Index (CPI)excludes goods imported from other countries and consumed by residents of the United States.

Use the table below to calculate the CPI in 2007.Assume the base year is 2007 and the cost of the market basket in the base year is $275.50. The CPI in 2007 is

To the extent that the CPI does not accurately measure the true price level,

In which of the following situations would an individual experience an increase in real wages?

Suppose Mike agrees to borrow $100 from Renee for one year at a one-time interest payment of 5%.They both expected the inflation rate to be 2% during the one-year period.However,during that year the inflation rate was actually 1%.Which of the following has occurred?

The consumer price index (CPI)excludes all of the following goods and services except one.Which type of good is included in the CPI?

Which of the following would cause the real interest rate to be negative?

The index used to translate nominal GDP into real GDP is the

If there are no restrictions on contracts,and if all parties in the economy accurately predict the rate of inflation over the next year,then

Which of the following is a reason why the Consumer Price Index (CPI)is not calculated as a simple average of all prices?

The term that refers to the price level rising at a low rate is

If inflation is fully anticipated and if there are no restrictions on contracts,then inflation will not redistribute purchasing power.

When a new good enters the market,the CPI

In 1996,an advisory committee of economists that studied the CPI found

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

Suppose that over time,consumers used discount stores at an increasing rate,the CPI would tend to be

If inflation is correctly anticipated,in a transaction between borrowers and lenders,inflation

Most economists agree that the size of the bias in the CPI is at least

If you borrow money at a nominal interest rate of 5 percent and the inflation rate is 10 percent,what real interest rate will you pay?

Lorrie will receive a nominal wage increase of 10 percent this year.The inflation rate was 5 percent last year and is predicted to be 8 percent this year.If the economic forecast is correct,her real wage this year

If the prices of domestic consumer goods increased while the prices of imported consumer goods decreased,and the demand for each remained the same,which of the following would most likely occur?

The Consumer Price Index (CPI)excludes goods imported from other countries and consumed by residents of the United States.

Use the table below to calculate the CPI in 2007.Assume the base year is 2007 and the cost of the market basket in the base year is $275.50. The CPI in 2007 is

To the extent that the CPI does not accurately measure the true price level,

In which of the following situations would an individual experience an increase in real wages?

Suppose Mike agrees to borrow $100 from Renee for one year at a one-time interest payment of 5%.They both expected the inflation rate to be 2% during the one-year period.However,during that year the inflation rate was actually 1%.Which of the following has occurred?

The consumer price index (CPI)excludes all of the following goods and services except one.Which type of good is included in the CPI?

Which of the following would cause the real interest rate to be negative?

The index used to translate nominal GDP into real GDP is the

If there are no restrictions on contracts,and if all parties in the economy accurately predict the rate of inflation over the next year,then

Which of the following is a reason why the Consumer Price Index (CPI)is not calculated as a simple average of all prices?

The term that refers to the price level rising at a low rate is

If inflation is fully anticipated and if there are no restrictions on contracts,then inflation will not redistribute purchasing power.

When a new good enters the market,the CPI

In 1996,an advisory committee of economists that studied the CPI found

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