Question 1

Which of the following statements is true?

Accepted Answer

A) When unanticipated inflation occurs regularly, the degree of risk associated with investments in the economy decreases. 
B) Inflation that is higher than expected benefits debtors and inflation that is lower than expected benefits creditors. 
C) Inflation improves the balance of trade as exports appear relatively cheaper to overseas buyers and imports become relatively more expensive. 
D) There are no costs or losses associated with inflation when it is fully anticipated. 
A) When unanticipated inflation occurs regularly, the degree of risk associated with investments in the economy decreases. 
B) Inflation that is higher than expected benefits debtors and inflation that is lower than expected benefits creditors. 
C) Inflation improves the balance of trade as exports appear relatively cheaper to overseas buyers and imports become relatively more expensive. 
D) There are no costs or losses associated with inflation when it is fully anticipated.

Question 2

Consider a simple economy that produces only three products: hot dogs, torches and golf balls. Use the information in the following table to calculate the inflation rate for 2017, as measured by the consumer price index.
   
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_____________________________________________________________________________________________

Accepted Answer

Total expenditures for 2009 = (10 × $1.0

Question 3

Explain the difference between the 'price level', 'inflation' and the 'inflation rate'.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The price level is a measure of the aver

Question 4

'Hyperinflation' is caused by a country's central bank when it reduces liquidity, thereby creating a shortage of money, leading to inflation.

Accepted Answer

A) True 
 B)False

Question 5

If borrowers and lenders anticipate that the rate of inflation will be 5%, but instead it turns out to be 3%, which of the following is likely to occur?

Accepted Answer

A) The real interest rate is higher than expected. 
B) Lenders wish that they had made fewer loans. 
C) Borrowers wish that they had borrowed more money. 
D) Insufficient loans will have been made by lenders to maintain profit levels. 
A) The real interest rate is higher than expected. 
B) Lenders wish that they had made fewer loans. 
C) Borrowers wish that they had borrowed more money. 
D) Insufficient loans will have been made by lenders to maintain profit levels.

Question 6

If aggregate demand continues to increase when the economy reaches full employment, demand-pull inflation will begin to decelerate.

Accepted Answer

A) True 
 B)False

Question 7

The problem with inflation is that as prices rise, most consumers can no longer afford to buy as many goods and services.

Accepted Answer

A) True 
 B)False

Question 8

Looking at the following table, real average hourly earnings equal ________ in 2017.

Accepted Answer

A) $9.52 
B) $9.00 
C) $10.47 
D) $12.00 
A) $9.52 
B) $9.00 
C) $10.47 
D) $12.00

Question 9

Which of the following is a correct description of 'inflation'?

Accepted Answer

A) Inflation refers to an increase in relative prices throughout the economy. 
B) Inflation is the change in the price level from one year to another. 
C) Inflation is a sustained increase in the price level. 
D) Inflation is when there is a one-time jump in the price level. 
A) Inflation refers to an increase in relative prices throughout the economy. 
B) Inflation is the change in the price level from one year to another. 
C) Inflation is a sustained increase in the price level. 
D) Inflation is when there is a one-time jump in the price level.

Question 10

Of the market basket that makes up the CPI, which of the following is the smallest portion?

Accepted Answer

A) education 
B) clothing and footwear 
C) transportation 
D) housing 
A) education 
B) clothing and footwear 
C) transportation 
D) housing

Question 11

'Cost-push inflation' can be caused by:

Accepted Answer

A) a high growth rate in real wages. 
B) an increase in aggregate demand, which pushes prices higher. 
C) an increase in aggregate supply, which pushes prices higher. 
D) growth in aggregate demand not keeping up with the growth in aggregate supply. 
A) a high growth rate in real wages. 
B) an increase in aggregate demand, which pushes prices higher. 
C) an increase in aggregate supply, which pushes prices higher. 
D) growth in aggregate demand not keeping up with the growth in aggregate supply.

Question 12

What is caused by high anticipated inflation?

Accepted Answer

A) Real wages will fall. 
B) Real interest rates will fall. 
C) Real wages will rise. 
D) There will be no change in real interest rates. 
A) Real wages will fall. 
B) Real interest rates will fall. 
C) Real wages will rise. 
D) There will be no change in real interest rates.

Question 13

Suppose that the data in the following table reflects the prices in an economy. What is the inflation rate in between 2017 and 2018?

Accepted Answer

A) 2% 
B) 5% 
C) 20% 
D) 10% 
A) 2% 
B) 5% 
C) 20% 
D) 10%

Question 14

When the price of petrol rises, some consumers begin riding their bikes more frequently or taking public transport instead of driving their cars. The fact that the CPI does not fully account for such changes in consumer behaviour is called:

Accepted Answer

A) outlet bias. 
B) increase in quality bias. 
C) substitution bias. 
D) discrimination bias. 
A) outlet bias. 
B) increase in quality bias. 
C) substitution bias. 
D) discrimination bias.

Question 15

Who, of the following options, does not suffer the costs of inflation?

Accepted Answer

A) people on fixed incomes 
B) people whose incomes rise more rapidly than inflation 
C) firms that have to devote more time and labour to raising prices 
D) an investor that has to pay higher taxes because of the inflation 
A) people on fixed incomes 
B) people whose incomes rise more rapidly than inflation 
C) firms that have to devote more time and labour to raising prices 
D) an investor that has to pay higher taxes because of the inflation

Question 16

From the data in the following table we can say that the cost of living rose by ________ between 2017 and 2018.

Accepted Answer

A) 2% 
B) 5% 
C) 8% 
D) 13% 
A) 2% 
B) 5% 
C) 8% 
D) 13%

Question 17

If the CPI changes from 125 to 120 between 2017 and 2018, how did prices change between 2017 and 2018?

Accepted Answer

A) increased by 4% 
B) decreased by 5% 
C) increased by 25% 
A) increased by 4% 
B) decreased by 5% 
C) increased by 25%

Question 18

If the real interest rate is 8% and the inflation rate is 3%, then the nominal interest rate is:

Accepted Answer

A) 4%. 
B) 8%. 
C) 11%. 
D) -4%. 
A) 4%. 
B) 8%. 
C) 11%. 
D) -4%.

Question 19

To calculate real wages in Year 1, it is correct to divide nominal wages in Year 1 by the CPI in year 1, and multiply the resultant figure by 100.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following can cause cost-push inflation if the economy is currently in equilibrium at full-employment GDP?

Accepted Answer

A) A flood which destroyed much of the country's crops. 
B) An increase in the size of the labour force. 
C) A decrease in personal income tax rates, which increases after-tax income. 
D) An increase in the capital stock in the country. 
A) A flood which destroyed much of the country's crops. 
B) An increase in the size of the labour force. 
C) A decrease in personal income tax rates, which increases after-tax income. 
D) An increase in the capital stock in the country.

Which of the following statements is true?

Consider a simple economy that produces only three products: hot dogs, torches and golf balls. Use the information in the following table to calculate the inflation rate for 2017, as measured by the consumer price index. _ _

Explain the difference between the 'price level', 'inflation' and the 'inflation rate'. _ _

'Hyperinflation' is caused by a country's central bank when it reduces liquidity, thereby creating a shortage of money, leading to inflation.

If borrowers and lenders anticipate that the rate of inflation will be 5%, but instead it turns out to be 3%, which of the following is likely to occur?

If aggregate demand continues to increase when the economy reaches full employment, demand-pull inflation will begin to decelerate.

The problem with inflation is that as prices rise, most consumers can no longer afford to buy as many goods and services.

Looking at the following table, real average hourly earnings equal ________ in 2017.

Which of the following is a correct description of 'inflation'?

Of the market basket that makes up the CPI, which of the following is the smallest portion?

'Cost-push inflation' can be caused by:

What is caused by high anticipated inflation?

Suppose that the data in the following table reflects the prices in an economy. What is the inflation rate in between 2017 and 2018?

When the price of petrol rises, some consumers begin riding their bikes more frequently or taking public transport instead of driving their cars. The fact that the CPI does not fully account for such changes in consumer behaviour is called:

Who, of the following options, does not suffer the costs of inflation?

From the data in the following table we can say that the cost of living rose by ________ between 2017 and 2018.

If the CPI changes from 125 to 120 between 2017 and 2018, how did prices change between 2017 and 2018?

If the real interest rate is 8% and the inflation rate is 3%, then the nominal interest rate is:

To calculate real wages in Year 1, it is correct to divide nominal wages in Year 1 by the CPI in year 1, and multiply the resultant figure by 100.

Which of the following can cause cost-push inflation if the economy is currently in equilibrium at full-employment GDP?

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

Which of the following statements is true?

Explain the difference between the 'price level', 'inflation' and the 'inflation rate'. _____________________________________________________________________________________________ _____________________________________________________________________________________________

'Hyperinflation' is caused by a country's central bank when it reduces liquidity, thereby creating a shortage of money, leading to inflation.

If borrowers and lenders anticipate that the rate of inflation will be 5%, but instead it turns out to be 3%, which of the following is likely to occur?

If aggregate demand continues to increase when the economy reaches full employment, demand-pull inflation will begin to decelerate.

The problem with inflation is that as prices rise, most consumers can no longer afford to buy as many goods and services.

Looking at the following table, real average hourly earnings equal ________ in 2017.

Which of the following is a correct description of 'inflation'?

Of the market basket that makes up the CPI, which of the following is the smallest portion?

'Cost-push inflation' can be caused by:

What is caused by high anticipated inflation?

Suppose that the data in the following table reflects the prices in an economy. What is the inflation rate in between 2017 and 2018?

When the price of petrol rises, some consumers begin riding their bikes more frequently or taking public transport instead of driving their cars. The fact that the CPI does not fully account for such changes in consumer behaviour is called:

Who, of the following options, does not suffer the costs of inflation?

From the data in the following table we can say that the cost of living rose by ________ between 2017 and 2018.

If the CPI changes from 125 to 120 between 2017 and 2018, how did prices change between 2017 and 2018?

If the real interest rate is 8% and the inflation rate is 3%, then the nominal interest rate is:

To calculate real wages in Year 1, it is correct to divide nominal wages in Year 1 by the CPI in year 1, and multiply the resultant figure by 100.

Which of the following can cause cost-push inflation if the economy is currently in equilibrium at full-employment GDP?

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 the difference between the 'price level', 'inflation' and the 'inflation rate'. _ _