Question 1

What is the difference between the consumer price index (CPI) and the gross domestic product (GDP) deflator?

Accepted Answer

A)  Under normal circumstances, the CPI is the better measure of the overall price level. 
B)  If inflation is high, the CPI is the better measure of the overall price level; if inflation is low or deflation is occurring, the GDP deflator is the better measure. 
C)  The GDP deflator is used only during periods of deflation; the rest of the time we use the CPI to measure the overall price level. 
D)  If we want to examine how price changes affect the overall economy, the GDP deflator is the better measure. 
E)  The CPI must be equal to the GDP deflator because of the "equation of consumer homogeneity." 
A)  Under normal circumstances, the CPI is the better measure of the overall price level. 
B)  If inflation is high, the CPI is the better measure of the overall price level; if inflation is low or deflation is occurring, the GDP deflator is the better measure. 
C)  The GDP deflator is used only during periods of deflation; the rest of the time we use the CPI to measure the overall price level. 
D)  If we want to examine how price changes affect the overall economy, the GDP deflator is the better measure. 
E)  The CPI must be equal to the GDP deflator because of the "equation of consumer homogeneity."

Question 2

In Nation A,the price index rises from 110 to 120 in a particular year.In the same year,the price level rises from 120 to 130 in Nation B.This means:

Accepted Answer

A)  inflation in both nations is 10%. 
B)  Nation B suffers from hyperinflation. 
C)  both nations suffer from hyperinflation. 
D)  Nation A is experiencing inflation but Nation B is experiencing deflation. 
E)  Nation A is experiencing inflation of less than 9.3% and Nation B is experiencing inflation of less than 8.5%. 
A)  inflation in both nations is 10%. 
B)  Nation B suffers from hyperinflation. 
C)  both nations suffer from hyperinflation. 
D)  Nation A is experiencing inflation but Nation B is experiencing deflation. 
E)  Nation A is experiencing inflation of less than 9.3% and Nation B is experiencing inflation of less than 8.5%.

Question 3

Refer to the following table to answer the next four questions:
  
-As presented in the table,the rate of inflation (or deflation) from 2001-2002 was (rounded to two decimal places):

Accepted Answer

A)  7.00%. 
B)  105.00%. 
C)  112.00%. 
D)  6.67%. 
E)  6.25%. 
A)  7.00%. 
B)  105.00%. 
C)  112.00%. 
D)  6.67%. 
E)  6.25%.

Question 4

The value of the consumer price index (CPI) is best described as:

Accepted Answer

A)  the current year prices to base year prices, holding the market basket content constant. 
B)  the current year prices to base year prices, including changes in the content of the market basket. 
C)  the base year prices to current year prices, holding the market basket content constant. 
D)  the base year prices to current year prices, including changes in the content of the market basket. 
E)  the current year quantity to base year quantity, including changes in the prices of the market basket. 
A)  the current year prices to base year prices, holding the market basket content constant. 
B)  the current year prices to base year prices, including changes in the content of the market basket. 
C)  the base year prices to current year prices, holding the market basket content constant. 
D)  the base year prices to current year prices, including changes in the content of the market basket. 
E)  the current year quantity to base year quantity, including changes in the prices of the market basket.

Question 5

Refer to the following figure when answering the next five questions:
  
-Referring to the figure,we can observe that:

Accepted Answer

A)  inflation seemed to stabilize in the early years, 1996-1999, but it then spiked between 2002 and 2004. 
B)  inflation was always under control in every year shown. 
C)  there was a relatively constant increase in inflation throughout the entire period shown. 
D)  inflation tended to fall consistently throughout the entire period shown. 
E)  there were periods of inflation and deflation depicted in the chart. 
A)  inflation seemed to stabilize in the early years, 1996-1999, but it then spiked between 2002 and 2004. 
B)  inflation was always under control in every year shown. 
C)  there was a relatively constant increase in inflation throughout the entire period shown. 
D)  inflation tended to fall consistently throughout the entire period shown. 
E)  there were periods of inflation and deflation depicted in the chart.

Question 6

Assume tuition at Houston Community College cost $588 (per semester) in 2004 and $813 in 2012.If the price index was 184 in 2004 and 226 in 2012,then we could say:

Accepted Answer

A)  tuition has increased more slowly than inflation. 
B)  tuition has increased more rapidly than inflation. 
C)  tuition has increased at about the same rate as inflation. 
D)  nominal tuition has decreased. 
E)  tuition suffers from menu costs due to inflation. 
A)  tuition has increased more slowly than inflation. 
B)  tuition has increased more rapidly than inflation. 
C)  tuition has increased at about the same rate as inflation. 
D)  nominal tuition has decreased. 
E)  tuition suffers from menu costs due to inflation.

Question 7

According to the textbook,the fully completed house that one could buy from the Sears catalog in 1924 would be:

Accepted Answer

A)  exorbitantly expensive by today's standards, adjusting for inflation. 
B)  about the typical price of a house today, adjusting for inflation. 
C)  of abnormally low quality and hence commanding a much lower price, even when adjusting for inflation. 
D)  quite a good deal, even when adjusting for inflation. 
E)  affordable to even the poorest Americans and would help to provide "sustainable growth." 
A)  exorbitantly expensive by today's standards, adjusting for inflation. 
B)  about the typical price of a house today, adjusting for inflation. 
C)  of abnormally low quality and hence commanding a much lower price, even when adjusting for inflation. 
D)  quite a good deal, even when adjusting for inflation. 
E)  affordable to even the poorest Americans and would help to provide "sustainable growth."

Question 8

Inflation occurs:

Accepted Answer

A)  when all prices in the economy rise. 
B)  when the prices of some goods rise and prices of some goods fall, but more goods have price increases than decreases. 
C)  when the prices of some goods rise and prices of some goods fall, but fewer goods have price increases than decreases. 
D)  when the overall level of prices rises. 
E)  when all prices in the economy fall. 
A)  when all prices in the economy rise. 
B)  when the prices of some goods rise and prices of some goods fall, but more goods have price increases than decreases. 
C)  when the prices of some goods rise and prices of some goods fall, but fewer goods have price increases than decreases. 
D)  when the overall level of prices rises. 
E)  when all prices in the economy fall.

Question 9

Refer to the following figure to answer the next four questions:
  
-As presented in the figure,one could correctly state that during the period shown:

Accepted Answer

A)  the United States and the European Union generally experienced periods of both inflation and deflation. 
B)  generally, the United States experienced deflation, but the European Union experienced inflation. 
C)  generally, the European Union experienced more deflation than the United States did. 
D)  there was never a time when either the United States or the European Union experienced deflation. 
E)  there were brief periods of hyperinflation for both the United States and European Union in the 1970s and early 1980s. 
A)  the United States and the European Union generally experienced periods of both inflation and deflation. 
B)  generally, the United States experienced deflation, but the European Union experienced inflation. 
C)  generally, the European Union experienced more deflation than the United States did. 
D)  there was never a time when either the United States or the European Union experienced deflation. 
E)  there were brief periods of hyperinflation for both the United States and European Union in the 1970s and early 1980s.

Question 10

Your entertainment price index (EPI) was computed based on three goods: movie tickets,popcorn,and limeade.If you change the quantity of these goods from this year to next year and the prices of two of the three goods increase while the other price falls,then:

Accepted Answer

A)  your EPI would definitely fall during the year in question if, and only if, you buy less of all the goods in question. 
B)  your EPI would definitely rise during the year in question because two of the three goods became more expensive. 
C)  your EPI might rise or fall, contingent on both the quantity of the goods that you bought and the prices of these goods. 
D)  your EPI might rise or fall, contingent only on the quantity of the goods that you bought and regardless of the prices of these goods. 
E)  your EPI might rise or fall, contingent only on the percentage of the market basket that these goods constituted and the percentage that each good occupied within the basket, regardless of the quantity change from year to year. 
A)  your EPI would definitely fall during the year in question if, and only if, you buy less of all the goods in question. 
B)  your EPI would definitely rise during the year in question because two of the three goods became more expensive. 
C)  your EPI might rise or fall, contingent on both the quantity of the goods that you bought and the prices of these goods. 
D)  your EPI might rise or fall, contingent only on the quantity of the goods that you bought and regardless of the prices of these goods. 
E)  your EPI might rise or fall, contingent only on the percentage of the market basket that these goods constituted and the percentage that each good occupied within the basket, regardless of the quantity change from year to year.

Question 11

Typically if real wages fall,the quantity demanded of labor rises.If workers agree to 3% wage increases for a four-year period and inflation is more than 3%,then,based on this information alone:

Accepted Answer

A)  workers will have higher real wages because they get paid more. 
B)  the quantity demanded of labor will increase, because real wages fell. 
C)  workers must experience money illusion. 
D)  the quantity demanded of labor will fall. 
E)  the demand, but not the quantity demanded, for labor will fall. 
A)  workers will have higher real wages because they get paid more. 
B)  the quantity demanded of labor will increase, because real wages fell. 
C)  workers must experience money illusion. 
D)  the quantity demanded of labor will fall. 
E)  the demand, but not the quantity demanded, for labor will fall.

Question 12

In Bovania,milk constitutes 56% of the typical basket of goods for a typical consumer.Let's say the price of milk rises by 4% and the prices of all other goods fall by 10%.Based on the information given,we can definitely say:

Accepted Answer

A)  the consumer price index (CPI) in Bovania is greater than in the previous year. 
B)  the CPI in Bovania is less than in the previous year. 
C)  if consumers get a 4% pay raise, they are worse off in terms of their real income compared to inflation as measured by the Bovanian CPI. 
D)  because milk is a necessity, consumers are automatically worse off no matter what pay increase they may have received. 
E)  shoe-leather costs have decreased. 
A)  the consumer price index (CPI) in Bovania is greater than in the previous year. 
B)  the CPI in Bovania is less than in the previous year. 
C)  if consumers get a 4% pay raise, they are worse off in terms of their real income compared to inflation as measured by the Bovanian CPI. 
D)  because milk is a necessity, consumers are automatically worse off no matter what pay increase they may have received. 
E)  shoe-leather costs have decreased.

Question 13

Refer to the following figure to answer the next four questions:
  
-Based on the figure,one could correctly state that:

Accepted Answer

A)  typically, U.S.inflation was greater than E.U.inflation, with some very brief exceptions. 
B)  typically, E.U.inflation was greater than U.S.inflation, with some very brief exceptions. 
C)  there is no consistent relationship between U.S.and E.U.inflation. 
D)  typically, U.S.and E.U.inflation move together, but E.U.inflation had a much larger variance than that experienced in the United States. 
E)  typically, U.S.and E.U.inflation move in opposite directions and U.S.inflation had a much larger variance than that experienced by the European Union. 
A)  typically, U.S.inflation was greater than E.U.inflation, with some very brief exceptions. 
B)  typically, E.U.inflation was greater than U.S.inflation, with some very brief exceptions. 
C)  there is no consistent relationship between U.S.and E.U.inflation. 
D)  typically, U.S.and E.U.inflation move together, but E.U.inflation had a much larger variance than that experienced in the United States. 
E)  typically, U.S.and E.U.inflation move in opposite directions and U.S.inflation had a much larger variance than that experienced by the European Union.

Question 14

Assume the price of salt increased from $0.30 in 1985 to $0.50 in 1995.If we calculate the average rate of price increase for salt over this period,we could accurately say:

Accepted Answer

A)  the price of salt increased at about a 40% rate per year during this period. 
B)  the price of salt increased at about a 20% rate per year during this period. 
C)  the price of salt increased by about 20% total during this period. 
D)  the price of salt increased at about a 5% rate per year during this period. 
E)  the real price of salt definitely increased during the period. 
A)  the price of salt increased at about a 40% rate per year during this period. 
B)  the price of salt increased at about a 20% rate per year during this period. 
C)  the price of salt increased by about 20% total during this period. 
D)  the price of salt increased at about a 5% rate per year during this period. 
E)  the real price of salt definitely increased during the period.

Question 15

One improvement of the chained consumer price index (CPI) over the traditional CPI is that:

Accepted Answer

A)  the chained CPI more quickly takes into account new goods. 
B)  the chained CPI accounts for substitution between goods. 
C)  the chained CPI is "progressive," whereas the traditional CPI is "regressive." 
D)  the traditional CPI measures Engle's law but ignores the Paasche effect, which is included in the chained CPI. 
E)  The chained CPI more easily accounts for deflation. 
A)  the chained CPI more quickly takes into account new goods. 
B)  the chained CPI accounts for substitution between goods. 
C)  the chained CPI is "progressive," whereas the traditional CPI is "regressive." 
D)  the traditional CPI measures Engle's law but ignores the Paasche effect, which is included in the chained CPI. 
E)  The chained CPI more easily accounts for deflation.

Question 16

Explain the notion of money illusion in specific detail.

Accepted Answer

Money illusion is when people notice the

Question 17

In 1940 you could buy a "nickel Pepsi" for (oddly enough) a nickel.If the price index in 1940 was 14 and the 2011 price index was 221,then the inflation-adjusted price of a Pepsi would be:

Accepted Answer

A)  a nickel ($0.05). 
B)  a dime ($0.10). 
C)  about 79 cents ($0.79). 
D)  about $1.21. 
E)  $0.00317. 
A)  a nickel ($0.05). 
B)  a dime ($0.10). 
C)  about 79 cents ($0.79). 
D)  about $1.21. 
E)  $0.00317.

Question 18

If nominal income increases,then:

Accepted Answer

A)  real income increases. 
B)  real income increases if the price index falls. 
C)  real income increases if the percent increase in price index rises by more the percent change in nominal income. 
D)  real income increases if you buy only the goods included in the consumer price index (CPI) and the majority of those goods get cheaper. 
E)  real income decreases. 
A)  real income increases. 
B)  real income increases if the price index falls. 
C)  real income increases if the percent increase in price index rises by more the percent change in nominal income. 
D)  real income increases if you buy only the goods included in the consumer price index (CPI) and the majority of those goods get cheaper. 
E)  real income decreases.

Question 19

The Bureau of Labor Statistics releases consumer price index (CPI) data:

Accepted Answer

A)  hourly. 
B)  daily. 
C)  weekly. 
D)  monthly. 
E)  only when the typical basket of goods changes. 
A)  hourly. 
B)  daily. 
C)  weekly. 
D)  monthly. 
E)  only when the typical basket of goods changes.

Question 20

The price of a McDonald's hamburger in 1955 was $0.15 when the price index was 27; if in 2011,it was $0.89 when the price index was 220,then the inflation-adjusted price of a McDonald's hamburger in 2011 was:

Accepted Answer

A)  almost exactly the same (within 10%). 
B)  much higher (twice or more) than 2011's actual price. 
C)  much lower (half or less) than 2011's actual price. 
D)  a bit higher than 2011's actual price (1-1.99 times as much). 
E)  a bit lower than 2011's actual price (0.51-0.90 times as much). 
A)  almost exactly the same (within 10%). 
B)  much higher (twice or more) than 2011's actual price. 
C)  much lower (half or less) than 2011's actual price. 
D)  a bit higher than 2011's actual price (1-1.99 times as much). 
E)  a bit lower than 2011's actual price (0.51-0.90 times as much).

What is the difference between the consumer price index (CPI) and the gross domestic product (GDP) deflator?

In Nation A,the price index rises from 110 to 120 in a particular year.In the same year,the price level rises from 120 to 130 in Nation B.This means:

Refer to the following table to answer the next four questions: -As presented in the table,the rate of inflation (or deflation) from 2001-2002 was (rounded to two decimal places):

The value of the consumer price index (CPI) is best described as:

Refer to the following figure when answering the next five questions: -Referring to the figure,we can observe that:

Assume tuition at Houston Community College cost $588 (per semester) in 2004 and $813 in 2012.If the price index was 184 in 2004 and 226 in 2012,then we could say:

According to the textbook,the fully completed house that one could buy from the Sears catalog in 1924 would be:

Inflation occurs:

Refer to the following figure to answer the next four questions: -As presented in the figure,one could correctly state that during the period shown:

Your entertainment price index (EPI) was computed based on three goods: movie tickets,popcorn,and limeade.If you change the quantity of these goods from this year to next year and the prices of two of the three goods increase while the other price falls,then:

Typically if real wages fall,the quantity demanded of labor rises.If workers agree to 3% wage increases for a four-year period and inflation is more than 3%,then,based on this information alone:

In Bovania,milk constitutes 56% of the typical basket of goods for a typical consumer.Let's say the price of milk rises by 4% and the prices of all other goods fall by 10%.Based on the information given,we can definitely say:

Refer to the following figure to answer the next four questions: -Based on the figure,one could correctly state that:

Assume the price of salt increased from $0.30 in 1985 to $0.50 in 1995.If we calculate the average rate of price increase for salt over this period,we could accurately say:

One improvement of the chained consumer price index (CPI) over the traditional CPI is that:

Explain the notion of money illusion in specific detail.

In 1940 you could buy a "nickel Pepsi" for (oddly enough) a nickel.If the price index in 1940 was 14 and the 2011 price index was 221,then the inflation-adjusted price of a Pepsi would be:

If nominal income increases,then:

The Bureau of Labor Statistics releases consumer price index (CPI) data:

The price of a McDonald's hamburger in 1955 was $0.15 when the price index was 27; if in 2011,it was $0.89 when the price index was 220,then the inflation-adjusted price of a McDonald's hamburger in 2011 was:

The Five Foundations of Economics

Model Building and Gains From Trade

The Market at Work: Supply and Demand

Price Controls

The Efficiency of Markets and the Costs of Taxation

Introduction to Macroeconomics and Gross Domestic Product

Unemployment

Savings, interest Rates, and the Market for Loanable Funds

Financial Markets and Securities

Economic Growth and the Wealth of Nations

Growth Theory

The Aggregate Demandaggregate Supply Model

The Great Recession, the Great Depression, and Great Macroeconomic Debates

Federal Budgets: the Tools of Fiscal Policy

Fiscal Policy

Money and the Federal Reserve

Monetary Policy

International Trade

International Finance

Filters

Exam 8: The Price Level and Inflation

What is the difference between the consumer price index (CPI) and the gross domestic product (GDP) deflator?

In Nation A,the price index rises from 110 to 120 in a particular year.In the same year,the price level rises from 120 to 130 in Nation B.This means:

Refer to the following table to answer the next four questions: -As presented in the table,the rate of inflation (or deflation) from 2001-2002 was (rounded to two decimal places):

The value of the consumer price index (CPI) is best described as:

Refer to the following figure when answering the next five questions: -Referring to the figure,we can observe that:

Assume tuition at Houston Community College cost $588 (per semester) in 2004 and $813 in 2012.If the price index was 184 in 2004 and 226 in 2012,then we could say:

According to the textbook,the fully completed house that one could buy from the Sears catalog in 1924 would be:

Inflation occurs:

Refer to the following figure to answer the next four questions: -As presented in the figure,one could correctly state that during the period shown:

Your entertainment price index (EPI) was computed based on three goods: movie tickets,popcorn,and limeade.If you change the quantity of these goods from this year to next year and the prices of two of the three goods increase while the other price falls,then:

Typically if real wages fall,the quantity demanded of labor rises.If workers agree to 3% wage increases for a four-year period and inflation is more than 3%,then,based on this information alone:

In Bovania,milk constitutes 56% of the typical basket of goods for a typical consumer.Let's say the price of milk rises by 4% and the prices of all other goods fall by 10%.Based on the information given,we can definitely say:

Refer to the following figure to answer the next four questions: -Based on the figure,one could correctly state that:

Assume the price of salt increased from $0.30 in 1985 to $0.50 in 1995.If we calculate the average rate of price increase for salt over this period,we could accurately say:

One improvement of the chained consumer price index (CPI) over the traditional CPI is that:

Explain the notion of money illusion in specific detail.

In 1940 you could buy a "nickel Pepsi" for (oddly enough) a nickel.If the price index in 1940 was 14 and the 2011 price index was 221,then the inflation-adjusted price of a Pepsi would be:

If nominal income increases,then:

The Bureau of Labor Statistics releases consumer price index (CPI) data:

The price of a McDonald's hamburger in 1955 was $0.15 when the price index was 27; if in 2011,it was $0.89 when the price index was 220,then the inflation-adjusted price of a McDonald's hamburger in 2011 was:

The Five Foundations of Economics

Model Building and Gains From Trade

The Market at Work: Supply and Demand

Price Controls

The Efficiency of Markets and the Costs of Taxation

Introduction to Macroeconomics and Gross Domestic Product

Unemployment

Savings, interest Rates, and the Market for Loanable Funds

Financial Markets and Securities

Economic Growth and the Wealth of Nations

Growth Theory

The Aggregate Demandaggregate Supply Model

The Great Recession, the Great Depression, and Great Macroeconomic Debates

Federal Budgets: the Tools of Fiscal Policy

Fiscal Policy

Money and the Federal Reserve

Monetary Policy

International Trade

International Finance

Filters