Question 1

If the anticipated rate of inflation is 5% and workers agree to a wage increase of 4%, if the anticipated rate occurs, then nominal wages will:

Accepted Answer

A) fall by 1%. 
B) rise by 4%. 
C) rise by 5%. 
D) fall by 5%. 
A) fall by 1%. 
B) rise by 4%. 
C) rise by 5%. 
D) fall by 5%.

Question 2

List three different price indices and explain how they differ in terms of the market basket on which they are based.
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Accepted Answer

Three examples of price indices are the

Question 3

Looking at the following table, real average hourly earnings equals ________ in 2016.

Accepted Answer

A) $9.52 
B) $9.00 
C) $10.00 
D) $12.00 
A) $9.52 
B) $9.00 
C) $10.00 
D) $12.00

Question 4

What are 'menu costs'?

Accepted Answer

A) The full list of a firm's costs of production. 
B) The costs to a firm of changing prices. 
C) The cost to a household of borrowing money when there is deflation. 
D) The opportunity cost of dining in a restaurant instead of at home. 
A) The full list of a firm's costs of production. 
B) The costs to a firm of changing prices. 
C) The cost to a household of borrowing money when there is deflation. 
D) The opportunity cost of dining in a restaurant instead of at home.

Question 5

If the anticipated rate of inflation is 3% but the subsequent actual rate of inflation is 5%, the likely outcome will be that the purchasing power of money will:

Accepted Answer

A) fall and lenders will benefit. 
B) increase and borrowers will benefit. 
C) fall and borrowers will benefit. 
D) increase and lenders will benefit. 
A) fall and lenders will benefit. 
B) increase and borrowers will benefit. 
C) fall and borrowers will benefit. 
D) increase and lenders will benefit.

Question 6

Suppose an economy has only three goods, and the typical family purchases the amounts given in the following table. If 2012 is the base year, then what is the CPI for 2017?

Accepted Answer

A) 89 
B) 125 
C) 212 
D) 163 
A) 89 
B) 125 
C) 212 
D) 163

Question 7

If inflation is completely anticipated:

Accepted Answer

A) no-one loses. 
B) borrowers lose. 
C) lenders lose. 
D) firms lose because they incur menu costs. 
A) no-one loses. 
B) borrowers lose. 
C) lenders lose. 
D) firms lose because they incur menu costs.

Question 8

Describe how a lender can lose from inflation if the inflation is unanticipated and the loan is a fixed-interest-rate loan. How would a variable-interest-rate loan (one that adjusts over the contract period)eliminate these losses?
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_____________________________________________________________________________________________

Accepted Answer

Lenders require compensation for inflati

Question 9

Explain how the CPI is constructed, and discuss any weaknesses with this measurement technique.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The Australian Bureau of Statistics (ABS

Question 10

Inflation that is ________ than what is expected benefits ________ and hurts ________.

Accepted Answer

A) less; lenders; borrowers 
B) less; borrowers; lenders 
C) greater; lenders; borrowers 
D) greater; lenders; no-one 
A) less; lenders; borrowers 
B) less; borrowers; lenders 
C) greater; lenders; borrowers 
D) greater; lenders; no-one

Question 11

Suppose you obtain a fixed interest rate mortgage during a period of relatively high inflation. During the next 10 years, inflation falls. Are you a winner or a loser due to inflation? Explain why.
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_____________________________________________________________________________________________

Accepted Answer

You would be a loser under this scenario

Question 12

If the nominal rate of interest is 6% and the inflation rate is 3%, what is the real rate of interest?

Accepted Answer

A) -9.5% 
B) -305% 
C) 1.5% 
D) 3% 
A) -9.5% 
B) -305% 
C) 1.5% 
D) 3%

Question 13

Explain why you would rather be a borrower during a period of unexpected rising inflation and a lender during a period of unexpected declining inflation.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The nominal interest rate includes a cha

Question 14

Looking at the following table, real wages ________ from 2016 to 2017 and real wages ________ from 2017 to 2018.

Accepted Answer

A) rose; rose 
B) rose; fell 
C) fell; fell 
D) fell; rose 
A) rose; rose 
B) rose; fell 
C) fell; fell 
D) fell; rose

Question 15

Describe how inflation can be costly even if it is anticipated.
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_____________________________________________________________________________________________

Accepted Answer

First, there will be redistribution as s

Question 16

Which of the following statements is false?

Accepted Answer

A) Whether you gain or lose during a period of inflation depends on whether your income rises faster or slower than the prices of things you buy. 
B) Inflation that is higher than expected benefits debtors and inflation that is lower than expected benefits creditors. 
C) When unanticipated inflation occurs regularly, the degree of risk associated with investments in the economy increases. 
D) There are no costs or losses associated with inflation when it is fully anticipated. 
A) Whether you gain or lose during a period of inflation depends on whether your income rises faster or slower than the prices of things you buy. 
B) Inflation that is higher than expected benefits debtors and inflation that is lower than expected benefits creditors. 
C) When unanticipated inflation occurs regularly, the degree of risk associated with investments in the economy increases. 
D) There are no costs or losses associated with inflation when it is fully anticipated.

Question 17

Looking at the following table, what is the rate of growth of the average price level from 2016 to 2018?

Accepted Answer

A) 1.52% 
B) 2% 
C) 3.5% 
D) 4.76% 
A) 1.52% 
B) 2% 
C) 3.5% 
D) 4.76%

Question 18

Explain how lowering inflation acts like a tax cut for investors and illustrate this using an example.
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_____________________________________________________________________________________________

Accepted Answer

When inflation increases, so does the no

Question 19

If nominal wages rise slower than the price level, then real wages have ________ and the purchasing power of income has ________.

Accepted Answer

A) fallen; fallen 
B) fallen; risen 
C) risen; risen 
D) risen; fallen 
A) fallen; fallen 
B) fallen; risen 
C) risen; risen 
D) risen; fallen

Question 20

In 1986, an Apple IIe computer with 65 kilobytes of memory cost around $1 500. Today, a $1 500 iMac computer (also made by Apple)comes with 8 gigabytes of memory. This illustrates the potential for what kind of bias in CPI calculations?

Accepted Answer

A) new product bias 
B) substitution bias 
C) increase in quality bias 
D) outlet bias 
A) new product bias 
B) substitution bias 
C) increase in quality bias 
D) outlet bias

If the anticipated rate of inflation is 5% and workers agree to a wage increase of 4%, if the anticipated rate occurs, then nominal wages will:

List three different price indices and explain how they differ in terms of the market basket on which they are based. _ _

Looking at the following table, real average hourly earnings equals ________ in 2016.

What are 'menu costs'?

If the anticipated rate of inflation is 3% but the subsequent actual rate of inflation is 5%, the likely outcome will be that the purchasing power of money will:

Suppose an economy has only three goods, and the typical family purchases the amounts given in the following table. If 2012 is the base year, then what is the CPI for 2017?

If inflation is completely anticipated:

Describe how a lender can lose from inflation if the inflation is unanticipated and the loan is a fixed-interest-rate loan. How would a variable-interest-rate loan (one that adjusts over the contract period)eliminate these losses? _ _

Explain how the CPI is constructed, and discuss any weaknesses with this measurement technique. _ _

Inflation that is than what is expected benefits and hurts .

Suppose you obtain a fixed interest rate mortgage during a period of relatively high inflation. During the next 10 years, inflation falls. Are you a winner or a loser due to inflation? Explain why. _ _

If the nominal rate of interest is 6% and the inflation rate is 3%, what is the real rate of interest?

Explain why you would rather be a borrower during a period of unexpected rising inflation and a lender during a period of unexpected declining inflation. _ _

Looking at the following table, real wages from 2016 to 2017 and real wages from 2017 to 2018.

Describe how inflation can be costly even if it is anticipated. _ _

Which of the following statements is false?

Looking at the following table, what is the rate of growth of the average price level from 2016 to 2018?

Explain how lowering inflation acts like a tax cut for investors and illustrate this using an example. _ _

If nominal wages rise slower than the price level, then real wages have and the purchasing power of income has .

In 1986, an Apple IIe computer with 65 kilobytes of memory cost around $1 500. Today, a $1 500 iMac computer (also made by Apple)comes with 8 gigabytes of memory. This illustrates the potential for what kind of bias in CPI calculations?

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

If the anticipated rate of inflation is 5% and workers agree to a wage increase of 4%, if the anticipated rate occurs, then nominal wages will:

Looking at the following table, real average hourly earnings equals ________ in 2016.

What are 'menu costs'?

If the anticipated rate of inflation is 3% but the subsequent actual rate of inflation is 5%, the likely outcome will be that the purchasing power of money will:

Suppose an economy has only three goods, and the typical family purchases the amounts given in the following table. If 2012 is the base year, then what is the CPI for 2017?

If inflation is completely anticipated:

Explain how the CPI is constructed, and discuss any weaknesses with this measurement technique. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Inflation that is ________ than what is expected benefits ________ and hurts ________.

If the nominal rate of interest is 6% and the inflation rate is 3%, what is the real rate of interest?

Looking at the following table, real wages ________ from 2016 to 2017 and real wages ________ from 2017 to 2018.

Describe how inflation can be costly even if it is anticipated. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Which of the following statements is false?

Looking at the following table, what is the rate of growth of the average price level from 2016 to 2018?

Explain how lowering inflation acts like a tax cut for investors and illustrate this using an example. _____________________________________________________________________________________________ _____________________________________________________________________________________________

If nominal wages rise slower than the price level, then real wages have ________ and the purchasing power of income has ________.

In 1986, an Apple IIe computer with 65 kilobytes of memory cost around $1 500. Today, a $1 500 iMac computer (also made by Apple)comes with 8 gigabytes of memory. This illustrates the potential for what kind of bias in CPI calculations?

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

Explain how the CPI is constructed, and discuss any weaknesses with this measurement technique. _ _

Inflation that is than what is expected benefits and hurts .

Looking at the following table, real wages from 2016 to 2017 and real wages from 2017 to 2018.

Describe how inflation can be costly even if it is anticipated. _ _

Explain how lowering inflation acts like a tax cut for investors and illustrate this using an example. _ _

If nominal wages rise slower than the price level, then real wages have and the purchasing power of income has .