Question 1

The CPI is used

Accepted Answer

A)  to estimate from estimated to actual values 
B)  to translate from real to nominal values 
C)  to translate from nominal to real values 
D)  as a policy target 
E)  c and d 
A)  to estimate from estimated to actual values 
B)  to translate from real to nominal values 
C)  to translate from nominal to real values 
D)  as a policy target 
E)  c and d D

Question 2

Suppose workers agreed to an indexed contract that increased their nominal wage by 4 percent plus 25 percent of any increase in the Consumer Price Index (CPI).If the CPI increased by 8 percent,what would be the change in the real wage?

Accepted Answer

A)  4 percent 
B)  -2 percent 
C)  0 percent 
D)  -4 percent 
E)  2 percent 
A)  4 percent 
B)  -2 percent 
C)  0 percent 
D)  -4 percent 
E)  2 percent B

Question 3

Economists maintain that the wage rate that workers should really care about is

Accepted Answer

A)  both the real wage rate and the nominal wage rate 
B)  the nominal wage rate 
C)  the nominal wage rate multiplied by the real wage rate 
D)  neither the real wage rate nor the nominal wage rate 
E)  the real wage rate 
A)  both the real wage rate and the nominal wage rate 
B)  the nominal wage rate 
C)  the nominal wage rate multiplied by the real wage rate 
D)  neither the real wage rate nor the nominal wage rate 
E)  the real wage rate E

Question 4

During the Great Depression the price level increased.

Accepted Answer

A) True 
 B)False

Question 5

Use the table below to calculate the CPI in 2007.Assume the base year is 2006 and the cost of the market basket in the base year is $200.   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 6

Suppose you recently took a pay cut of 2% at your job.You expect the price level to fall by 3% during this year.What would be the impact on your real wage?

Accepted Answer

A)  The real wage would fall by 3% 
B)  The real wage would rise by 3% 
C)  The real wage would fall by 1% 
D)  The real wage would rise by 1% 
E)  The real wage would be unchanged 
A)  The real wage would fall by 3% 
B)  The real wage would rise by 3% 
C)  The real wage would fall by 1% 
D)  The real wage would rise by 1% 
E)  The real wage would be unchanged

Question 7

Prices of finished imported goods are

Accepted Answer

A)  not included in the CPI because the goods were produced outside the country 
B)  not included in the CPI because different countries choose different base periods 
C)  not included in the CPI because import prices are not denominated in U.S.dollars 
D)  not included in the CPI because most imports are raw materials 
E)  included in the CPI 
A)  not included in the CPI because the goods were produced outside the country 
B)  not included in the CPI because different countries choose different base periods 
C)  not included in the CPI because import prices are not denominated in U.S.dollars 
D)  not included in the CPI because most imports are raw materials 
E)  included in the CPI

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

The inflation rate for a given year is found by taking the percentage change in the Consumer Price Index (CPI)from the base year to the year in question.

Accepted Answer

A) True 
 B)False

Question 10

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 11

Assume that Ernesto earned a nominal wage rate of $15 per hour in 2001,the base year for the CPI.If the CPI in 2002 was 102.6 and his nominal wage rate was $16 per hour,what was his real wage rate in 2001?

Accepted Answer

A)  $14.62 
B)  $15.00 
C)  $15.59 
D)  $16.00 
E)  His real wage for 2001 cannot be determined with the information given. 
A)  $14.62 
B)  $15.00 
C)  $15.59 
D)  $16.00 
E)  His real wage for 2001 cannot be determined with the information given.

Question 12

Suppose that Colleen's nominal wage rate was $20 per hour in 1998,the base year for the CPI.If the CPI in 2003 was 120.0 and her nominal wage had risen to $22 per hour,what was her real wage in 2003?

Accepted Answer

A)  $16.67 
B)  $18.33 
C)  $22.00 
D)  $26.40 
E)  her real wage for 2003 cannot be determined with the information given 
A)  $16.67 
B)  $18.33 
C)  $22.00 
D)  $26.40 
E)  her real wage for 2003 cannot be determined with the information given

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

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 15

Which of the following is not true about the Consumer Price Index (CPI)?

Accepted Answer

A)  The U.S.income tax system is indexed based on the CPI. 
B)  The majority of labor union contracts have wages indexed by the CPI. 
C)  The CPI can be used to transform nominal variables into real variables. 
D)  The CPI can be used to measure the inflation rate. 
E)  Social security benefits are indexed by the CPI. 
A)  The U.S.income tax system is indexed based on the CPI. 
B)  The majority of labor union contracts have wages indexed by the CPI. 
C)  The CPI can be used to transform nominal variables into real variables. 
D)  The CPI can be used to measure the inflation rate. 
E)  Social security benefits are indexed by the CPI.

Question 16

Inflation

Accepted Answer

A)  hurts society by imposing additional opportunity costs 
B)  is generally harmful,but has the benefit of reducing opportunity costs 
C)  makes it easier for us to comparison shop 
D)  benefits society by causing people to make use of resources that would have otherwise gone to waste 
E)  benefits society because by making people better consumers,they start to buy only those consumer goods they really need 
A)  hurts society by imposing additional opportunity costs 
B)  is generally harmful,but has the benefit of reducing opportunity costs 
C)  makes it easier for us to comparison shop 
D)  benefits society by causing people to make use of resources that would have otherwise gone to waste 
E)  benefits society because by making people better consumers,they start to buy only those consumer goods they really need

Question 17

If prices (as measured by the CPI)fell by one-half and nominal wages fell by one-third,what would happen to real wages?

Accepted Answer

A)  They would fall by one-third 
B)  They would remain unchanged 
C)  They would decrease 
D)  They would increase 
E)  They would fall by one-half 
A)  They would fall by one-third 
B)  They would remain unchanged 
C)  They would decrease 
D)  They would increase 
E)  They would fall by one-half

Question 18

If you borrow money at a 9% nominal rate and the inflation rate is 2%,what is the real interest rate on the loan?

Accepted Answer

A)  9.0% 
B)  11.0% 
C)  7.0% 
D)  2.0% 
E)  4.5% 
A)  9.0% 
B)  11.0% 
C)  7.0% 
D)  2.0% 
E)  4.5%

Question 19

Improvements in the quality of consumer goods and services over time

Accepted Answer

A)  cause inflation as measured by the CPI to overstate the actual inflation rate 
B)  cause inflation as measured by the CPI to understate the actual inflation rate 
C)  are accounted for in the CPI 
D)  are insignificant and thus would not affect the CPI even if accounted for 
E)  improve the accuracy and consistency of the market basket 
A)  cause inflation as measured by the CPI to overstate the actual inflation rate 
B)  cause inflation as measured by the CPI to understate the actual inflation rate 
C)  are accounted for in the CPI 
D)  are insignificant and thus would not affect the CPI even if accounted for 
E)  improve the accuracy and consistency of the market basket

Question 20

In which of the following situations would a worker have the greatest real income?

Accepted Answer

A)  She receives a pay cut and her nominal wage falls by 5 percent,while the CPI falls by 20 percent. 
B)  She receives a pay cut and her nominal wage falls by 5 percent,while the CPI increases by 10 percent. 
C)  Her nominal wage remains the same,as does the CPI. 
D)  She receives a raise and her nominal wage increases by 5 percent,while the CPI increases by 10 percent. 
E)  She receives a raise and her salary increases by 5 percent,while the CPI falls by 5 percent. 
A)  She receives a pay cut and her nominal wage falls by 5 percent,while the CPI falls by 20 percent. 
B)  She receives a pay cut and her nominal wage falls by 5 percent,while the CPI increases by 10 percent. 
C)  Her nominal wage remains the same,as does the CPI. 
D)  She receives a raise and her nominal wage increases by 5 percent,while the CPI increases by 10 percent. 
E)  She receives a raise and her salary increases by 5 percent,while the CPI falls by 5 percent.

Exam 19: The Price Level and Inflation

The CPI is used

Suppose workers agreed to an indexed contract that increased their nominal wage by 4 percent plus 25 percent of any increase in the Consumer Price Index (CPI).If the CPI increased by 8 percent,what would be the change in the real wage?

Economists maintain that the wage rate that workers should really care about is

During the Great Depression the price level increased.

Use the table below to calculate the CPI in 2007.Assume the base year is 2006 and the cost of the market basket in the base year is $200. The CPI in 2007 is

Suppose you recently took a pay cut of 2% at your job.You expect the price level to fall by 3% during this year.What would be the impact on your real wage?

Prices of finished imported goods are

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

The inflation rate for a given year is found by taking the percentage change in the Consumer Price Index (CPI)from the base year to the year in question.

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

Assume that Ernesto earned a nominal wage rate of $15 per hour in 2001,the base year for the CPI.If the CPI in 2002 was 102.6 and his nominal wage rate was $16 per hour,what was his real wage rate in 2001?

Suppose that Colleen's nominal wage rate was $20 per hour in 1998,the base year for the CPI.If the CPI in 2003 was 120.0 and her nominal wage had risen to $22 per hour,what was her real wage in 2003?

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

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 not true about the Consumer Price Index (CPI)?

Inflation

If prices (as measured by the CPI)fell by one-half and nominal wages fell by one-third,what would happen to real wages?

If you borrow money at a 9% nominal rate and the inflation rate is 2%,what is the real interest rate on the loan?

Improvements in the quality of consumer goods and services over time

In which of the following situations would a worker have the greatest real income?

What Is Economics

Scarcity,choice,and Economic Systems

Scarcity, choice, and Economic Systems: Part A

Working With Supply and Demand

Elasticity

Consumer Choice

Production and Cost

How Firms Make Decisions: Profit Maximization

Perfect Competition

Perfect Competition: Part A

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

labor Markets: Part A

Capital and Financial Markets

Economic Efficiency and the Competitive Ideal

Governments Role in Economic Efficiency

Comparative Advantage and the Gains From International Trade

What Macroeconomics Tries to Explain

Production, income, and Employment

The Classical Long-Run Model

Part A: The Classical Model in an Open Economy

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

Feedback Effects From GDP to the Money Market

Aggregate Demand and Aggregate Supply

Inflation and Monetary Policy

Exchange Rates and Macroeconomic Policy

Appendix-finding Equilibrium GDP Algebraically

Appendix: Capital and Leverage

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