Question 1

What is the cost to firms of changing prices?

Accepted Answer

A) redistribution costs 
B) anticipation costs 
C) menu costs 
D) money illusion costs 
A) redistribution costs 
B) anticipation costs 
C) menu costs 
D) money illusion costs B

Question 2

If consumers purchase fewer of those products that increase most in price and more of those products that decrease in price as compared to the CPI basket, then changes in the CPI:

Accepted Answer

A) accurately reflect the true rate of inflation. 
B) understate the true rate of inflation. 
C) overstate the true rate of inflation. 
D) are unrelated to the true rate of inflation. 
A) accurately reflect the true rate of inflation. 
B) understate the true rate of inflation. 
C) overstate the true rate of inflation. 
D) are unrelated to the true rate of inflation. C

Question 3

'Deflation' occurs when the price level becomes negative.

Accepted Answer

A) True 
 B)False  False

Question 4

During a deflationary period, the:

Accepted Answer

A) nominal interest rate is less than the real interest rate. 
B) real interest rate is less than the nominal interest rate. 
C) price level rises. 
D) nominal interest rate does not change. 
A) nominal interest rate is less than the real interest rate. 
B) real interest rate is less than the nominal interest rate. 
C) price level rises. 
D) nominal interest rate does not change.

Question 5

The formula for calculating the CPI is:

Accepted Answer

A) (Expenditures in the current year/Expenditures in the base year)× 100. 
B) (Expenditures in the current year × Expenditures in the base year)/100. 
C) (Expenditures in the base year/Expenditures in the current year). 
D) (Expenditures in the base year × 100)/(Expenditures in the current year). 
A) (Expenditures in the current year/Expenditures in the base year)× 100. 
B) (Expenditures in the current year × Expenditures in the base year)/100. 
C) (Expenditures in the base year/Expenditures in the current year). 
D) (Expenditures in the base year × 100)/(Expenditures in the current year).

Question 6

The 'inflation rate' is measured as the:

Accepted Answer

A) percentage change in the relevant price index from one time period to another. 
B) change in the price level between two time periods, multiplied by 100. 
C) percentage change in prices in time period 1 minus the percentage change in prices in time period 2, multiplied by 100. 
D) price index in time period 2 minus the price index in time period 1. 
A) percentage change in the relevant price index from one time period to another. 
B) change in the price level between two time periods, multiplied by 100. 
C) percentage change in prices in time period 1 minus the percentage change in prices in time period 2, multiplied by 100. 
D) price index in time period 2 minus the price index in time period 1.

Question 7

With 'cost-push inflation', initially:

Accepted Answer

A) the price level and real GDP both increase. 
B) only real GDP changes while the price level remains constant. 
C) the price level rises and real GDP declines. 
D) All of these options are correct. 
A) the price level and real GDP both increase. 
B) only real GDP changes while the price level remains constant. 
C) the price level rises and real GDP declines. 
D) All of these options are correct.

Question 8

Does inflation mean that consumers can no longer afford to buy as many goods and services due to the higher prices? Explain.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

No, inflation does not mean that consume

Question 9

Which of the following is not true about 'hyperinflation'?

Accepted Answer

A) During times of hyperinflation, people try to avoid holding cash. 
B) Economies with hyperinflation are usually in a severe recession. 
C) Hyperinflation occurs during times of an economic boom. 
D) During times of hyperinflation, the rate of inflation can be millions of per cent per month. 
A) During times of hyperinflation, people try to avoid holding cash. 
B) Economies with hyperinflation are usually in a severe recession. 
C) Hyperinflation occurs during times of an economic boom. 
D) During times of hyperinflation, the rate of inflation can be millions of per cent per month.

Question 10

If the CPI falls from 142 to 140 between two consecutive years, this implies that prices fell by 2% between those two years.

Accepted Answer

A) True 
 B)False

Question 11

If you want to earn a real interest rate of 3.5% on money you lend and you expect that inflation will be 2.5%, what nominal rate of interest will you charge?

Accepted Answer

A) 1% 
B) 5% 
C) 6% 
D) 9% 
A) 1% 
B) 5% 
C) 6% 
D) 9%

Question 12

The 'PPI' is the:

Accepted Answer

A) price parity index. 
B) prime producer index. 
C) producer price index. 
D) production performance indicator. 
A) price parity index. 
B) prime producer index. 
C) producer price index. 
D) production performance indicator.

Question 13

Which of the following is not generally a cost posed by inflation?

Accepted Answer

A) Inflation reduces the affordability of goods and services to the average consumer. 
B) Consumers and firms lose purchasing power to the extent that money loses value. 
C) Firms must pay for changing prices on products and printing new catalogues. 
D) Banks can lose if they under-predict inflation and charge an interest rate that does not completely compensate for inflation. 
A) Inflation reduces the affordability of goods and services to the average consumer. 
B) Consumers and firms lose purchasing power to the extent that money loses value. 
C) Firms must pay for changing prices on products and printing new catalogues. 
D) Banks can lose if they under-predict inflation and charge an interest rate that does not completely compensate for inflation.

Question 14

During times of deflation, borrowers of money can lose, as their debt burden increases.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following causes 'hyperinflation'?

Accepted Answer

A) A shortage of credit, similar to that which occurred during the 2007-2009 global financial crisis. 
B) A central bank policy of high interest rates. 
C) Government budget surpluses leading to an increase in government spending. 
D) Central bank activity which increases financial liquidity at a much greater rate than the growth rate of real GDP. 
A) A shortage of credit, similar to that which occurred during the 2007-2009 global financial crisis. 
B) A central bank policy of high interest rates. 
C) Government budget surpluses leading to an increase in government spending. 
D) Central bank activity which increases financial liquidity at a much greater rate than the growth rate of real GDP.

Question 16

What is 'deflation' and what effect does deflation have on borrowers of money and on asset values?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

Deflation is a decline in the general le

Question 17

You lend $5 000 to a friend for one year at a nominal interest rate of 10%. The CPI over that year rises from 180 to 190. What is the real rate of interest you will earn?

Accepted Answer

A) 0% 
B) 4.4% 
C) 5.5% 
D) 5.8% 
A) 0% 
B) 4.4% 
C) 5.5% 
D) 5.8%

Question 18

How many broad categories of goods and services are in the CPI market basket, and which three largest groups comprise almost half of the market basket?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

There are 11 broad categories

Question 19

Which of the following individuals would be most negatively affected by 'anticipated inflation'?

Accepted Answer

A) A retired railway engineer who receives a fixed income payment every month. 
B) A union contractor whose pay is adjusted based on changes in the CPI. 
C) A full-time employee at a pizza shop who earns more than the minimum wage. 
D) A student who borrows $10 000 at a nominal interest rate of 5% to finance educational expenses. 
A) A retired railway engineer who receives a fixed income payment every month. 
B) A union contractor whose pay is adjusted based on changes in the CPI. 
C) A full-time employee at a pizza shop who earns more than the minimum wage. 
D) A student who borrows $10 000 at a nominal interest rate of 5% to finance educational expenses.

Question 20

Assume that the base period for CPI calculations is 1980. In Australia in 2016, around 30% of people accessed the Internet through a broadband connection that did not exist in the 1980s. This potential for bias in the CPI is referred to as ________ bias and results in ________.

Accepted Answer

A) outlet; the CPI underestimating the true change in the cost of living 
B) new product; the CPI overestimating the true change in the cost of living 
C) outlet; the CPI overestimating the true change in the cost of living 
D) net product; the CPI underestimating the true change in the cost of living 
A) outlet; the CPI underestimating the true change in the cost of living 
B) new product; the CPI overestimating the true change in the cost of living 
C) outlet; the CPI overestimating the true change in the cost of living 
D) net product; the CPI underestimating the true change in the cost of living

What is the cost to firms of changing prices?

If consumers purchase fewer of those products that increase most in price and more of those products that decrease in price as compared to the CPI basket, then changes in the CPI:

'Deflation' occurs when the price level becomes negative.

During a deflationary period, the:

The formula for calculating the CPI is:

The 'inflation rate' is measured as the:

With 'cost-push inflation', initially:

Does inflation mean that consumers can no longer afford to buy as many goods and services due to the higher prices? Explain. _ _

Which of the following is not true about 'hyperinflation'?

If the CPI falls from 142 to 140 between two consecutive years, this implies that prices fell by 2% between those two years.

If you want to earn a real interest rate of 3.5% on money you lend and you expect that inflation will be 2.5%, what nominal rate of interest will you charge?

The 'PPI' is the:

Which of the following is not generally a cost posed by inflation?

During times of deflation, borrowers of money can lose, as their debt burden increases.

Which of the following causes 'hyperinflation'?

What is 'deflation' and what effect does deflation have on borrowers of money and on asset values? _ _

You lend $5 000 to a friend for one year at a nominal interest rate of 10%. The CPI over that year rises from 180 to 190. What is the real rate of interest you will earn?

How many broad categories of goods and services are in the CPI market basket, and which three largest groups comprise almost half of the market basket? _ _

Which of the following individuals would be most negatively affected by 'anticipated inflation'?

Assume that the base period for CPI calculations is 1980. In Australia in 2016, around 30% of people accessed the Internet through a broadband connection that did not exist in the 1980s. This potential for bias in the CPI is referred to as bias and results in .

Economics: Foundations and Models

Choices and Trade Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Gdp: Measuring Total Production, Income and Economic Growth

Economic Growth, the Financial System and Business Cycles

Long-Run Economic Growth: Sources and Policies

Unemployment

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

Exam 8: Inflation

What is the cost to firms of changing prices?

If consumers purchase fewer of those products that increase most in price and more of those products that decrease in price as compared to the CPI basket, then changes in the CPI:

'Deflation' occurs when the price level becomes negative.

During a deflationary period, the:

The formula for calculating the CPI is:

The 'inflation rate' is measured as the:

With 'cost-push inflation', initially:

Which of the following is not true about 'hyperinflation'?

If the CPI falls from 142 to 140 between two consecutive years, this implies that prices fell by 2% between those two years.

If you want to earn a real interest rate of 3.5% on money you lend and you expect that inflation will be 2.5%, what nominal rate of interest will you charge?

The 'PPI' is the:

Which of the following is not generally a cost posed by inflation?

During times of deflation, borrowers of money can lose, as their debt burden increases.

Which of the following causes 'hyperinflation'?

What is 'deflation' and what effect does deflation have on borrowers of money and on asset values? _____________________________________________________________________________________________ _____________________________________________________________________________________________

You lend $5 000 to a friend for one year at a nominal interest rate of 10%. The CPI over that year rises from 180 to 190. What is the real rate of interest you will earn?

Which of the following individuals would be most negatively affected by 'anticipated inflation'?

Assume that the base period for CPI calculations is 1980. In Australia in 2016, around 30% of people accessed the Internet through a broadband connection that did not exist in the 1980s. This potential for bias in the CPI is referred to as ________ bias and results in ________.

Economics: Foundations and Models

Choices and Trade Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Gdp: Measuring Total Production, Income and Economic Growth

Economic Growth, the Financial System and Business Cycles

Long-Run Economic Growth: Sources and Policies

Unemployment

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

What is 'deflation' and what effect does deflation have on borrowers of money and on asset values? _ _

Assume that the base period for CPI calculations is 1980. In Australia in 2016, around 30% of people accessed the Internet through a broadband connection that did not exist in the 1980s. This potential for bias in the CPI is referred to as bias and results in .