Question 1

If the price level is falling,the economy is experiencing

Accepted Answer

A)  creeping inflation 
B)  stagflation 
C)  disinflation 
D)  inflation 
E)  deflation 
A)  creeping inflation 
B)  stagflation 
C)  disinflation 
D)  inflation 
E)  deflation

Question 2

Suppose the CPI has been overstating the increase in the cost of living by 1% for 25 years,the total impact of that 25 years later is

Accepted Answer

A)  less than 25% 
B)  exactly 25% 
C)  negligible since it is only 1% per year 
D)  more than 25% 
E)  24% 
A)  less than 25% 
B)  exactly 25% 
C)  negligible since it is only 1% per year 
D)  more than 25% 
E)  24%

Question 3

Inflation will generally redistribute purchasing power when

Accepted Answer

A)  it is fully expected 
B)  it is completely unexpected 
C)  it is greater than 3 percent 
D)  it is greater than 5 percent 
E)  it is greater than 10 percent 
A)  it is fully expected 
B)  it is completely unexpected 
C)  it is greater than 3 percent 
D)  it is greater than 5 percent 
E)  it is greater than 10 percent

Question 4

The GDP Price Index and the Consumer Price Index measure prices of the same set of goods.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements about unanticipated inflation is true?

Accepted Answer

A)  It reduces average purchasing power in the economy. 
B)  It reduces total purchasing power in the economy. 
C)  It redistributes purchasing power in the economy. 
D)  It reduces nominal wages. 
E)  Its effects are spread evenly throughout the economy so that no one gains or loses from inflation. 
A)  It reduces average purchasing power in the economy. 
B)  It reduces total purchasing power in the economy. 
C)  It redistributes purchasing power in the economy. 
D)  It reduces nominal wages. 
E)  Its effects are spread evenly throughout the economy so that no one gains or loses from inflation.

Question 6

Suppose you had the following information regarding the economy:   Which of the following best describes the behavior of the real wage rate?

Accepted Answer

A)  It increased from 2001 to 2002 and increased further from 2002 to 2003. 
B)  It dropped from 2001 to 2002 and then increased from 2002 to 2003. 
C)  It dropped from 2001 to 2002 and then remained the same from 2002 to 2003. 
D)  It increased from 2001 to 2002 and then dropped from 2002 to 2003. 
E)  It remained the same from 2001 to 2002 and then increased from 2002 to 2003. 
A)  It increased from 2001 to 2002 and increased further from 2002 to 2003. 
B)  It dropped from 2001 to 2002 and then increased from 2002 to 2003. 
C)  It dropped from 2001 to 2002 and then remained the same from 2002 to 2003. 
D)  It increased from 2001 to 2002 and then dropped from 2002 to 2003. 
E)  It remained the same from 2001 to 2002 and then increased from 2002 to 2003.

Question 7

As of December 2008,housing accounted for about ________ of the typical consumer's spending.

Accepted Answer

A)  32 percent. 
B)  30 percent. 
C)  43 percent. 
D)  65 percent. 
E)  70 percent. 
A)  32 percent. 
B)  30 percent. 
C)  43 percent. 
D)  65 percent. 
E)  70 percent.

Question 8

The formula for determining a real variable is real variable =

Accepted Answer

A)  (nominal variable $\div$  100)$\times$ CPI 
B)  (nominal variable $\times$ CPI)$\div$  100 
C)  (nominal variable $\div$  price index)$\times$ 100 
D)  (nominal variable $\div$  price index)+ 100 
E)  (nominal variable $\div$  price index)$\div$  100 
A)  (nominal variable $\div$  100)$\times$ CPI 
B)  (nominal variable $\times$ CPI)$\div$  100 
C)  (nominal variable $\div$  price index)$\times$ 100 
D)  (nominal variable $\div$  price index)+ 100 
E)  (nominal variable $\div$  price index)$\div$  100

Question 9

The Bureau of Labor Statistics complies two different types of market baskets,to reflect the spending habits of two different types of people:

Accepted Answer

A)  All Urban Workers (CPI-U)and All Farm Workers (CPI-F) 
B)  All Urban Workers (CPI-U)and Urban Low Wage Workers (CPI-LW) 
C)  All Urban Workers (CPI-U)and Urban Wage Earners and Clerical Workers (CPI-W) 
D)  All Urban Workers (CPI-U)and All Rural Workers (CPI-R) 
E)  All Urban Workers (CPI-U)and Urban Service Workers (CPI-S). 
A)  All Urban Workers (CPI-U)and All Farm Workers (CPI-F) 
B)  All Urban Workers (CPI-U)and Urban Low Wage Workers (CPI-LW) 
C)  All Urban Workers (CPI-U)and Urban Wage Earners and Clerical Workers (CPI-W) 
D)  All Urban Workers (CPI-U)and All Rural Workers (CPI-R) 
E)  All Urban Workers (CPI-U)and Urban Service Workers (CPI-S).

Question 10

When a payment is indexed to inflation and the price index understates inflation,

Accepted Answer

A)  the real payment decreases over time 
B)  the real payment increases over time 
C)  the nominal payment decreases over time 
D)  in unemployment rate will increase 
E)  the level of unemployment will increase 
A)  the real payment decreases over time 
B)  the real payment increases over time 
C)  the nominal payment decreases over time 
D)  in unemployment rate will increase 
E)  the level of unemployment will increase

Question 11

The real wage can increase only if the nominal wage increases.

Accepted Answer

A) True 
 B)False

Question 12

The real wage rate measures

Accepted Answer

A)  nominal wages after taxes 
B)  what workers are paid in terms of this year's dollars 
C)  what workers are paid in terms of purchasing power 
D)  what workers have available for spending after paying their bills 
E)  the number of dollars earned by workers 
A)  nominal wages after taxes 
B)  what workers are paid in terms of this year's dollars 
C)  what workers are paid in terms of purchasing power 
D)  what workers have available for spending after paying their bills 
E)  the number of dollars earned by workers

Question 13

In which of the following situations would an individual experience an increase in real wages?

Accepted Answer

A)  Receiving a 5 percent increase in nominal wages while inflation was 6 percent 
B)  Taking a 3 percent cut in nominal wages while deflation was 4 percent 
C)  Taking a 1 percent cut in nominal wages while inflation was 1 percent 
D)  Receiving a 3 percent increase in nominal wages while inflation was 3 percent 
E)  Receiving no increase in nominal wages while inflation was 0 percent 
A)  Receiving a 5 percent increase in nominal wages while inflation was 6 percent 
B)  Taking a 3 percent cut in nominal wages while deflation was 4 percent 
C)  Taking a 1 percent cut in nominal wages while inflation was 1 percent 
D)  Receiving a 3 percent increase in nominal wages while inflation was 3 percent 
E)  Receiving no increase in nominal wages while inflation was 0 percent

Question 14

In which of the following situations would a person be best off in real terms?

Accepted Answer

A)  Receiving a 10 percent increase in a nominal wage,with an 8 percent rate of inflation in the economy 
B)  Receiving a 3 percent increase in a nominal wage,with a 0 percent rate of inflation in the economy 
C)  Receiving a 4 percent increase in a nominal wage,with a 5 percent rate of inflation in the economy 
D)  Receiving no increase in a nominal wage,with a 5 percent rate of deflation in the economy 
E)  Receiving a 2 percent decrease in a nominal wage,with a 6 percent rate of deflation in the economy 
A)  Receiving a 10 percent increase in a nominal wage,with an 8 percent rate of inflation in the economy 
B)  Receiving a 3 percent increase in a nominal wage,with a 0 percent rate of inflation in the economy 
C)  Receiving a 4 percent increase in a nominal wage,with a 5 percent rate of inflation in the economy 
D)  Receiving no increase in a nominal wage,with a 5 percent rate of deflation in the economy 
E)  Receiving a 2 percent decrease in a nominal wage,with a 6 percent rate of deflation in the economy

Question 15

Which of the following statements is true about the behavior of the CPI?

Accepted Answer

A)  It has risen steadily since 1960. 
B)  It has fallen steadily since 1960. 
C)  It fell during the 1960s and has risen ever since. 
D)  It rose sharply in the 1970s and then declined in the 1980s. 
E)  It has risen and fallen with roughly equal frequency since 1960. 
A)  It has risen steadily since 1960. 
B)  It has fallen steadily since 1960. 
C)  It fell during the 1960s and has risen ever since. 
D)  It rose sharply in the 1970s and then declined in the 1980s. 
E)  It has risen and fallen with roughly equal frequency since 1960.

Question 16

The CPI includes the prices of

Accepted Answer

A)  goods and services purchased by American consumers 
B)  goods and services purchased by all consumers (both foreign and domestic) 
C)  goods and services purchased by the government 
D)  investment goods purchased by businesses 
E)  exports purchased by foreign buyers 
A)  goods and services purchased by American consumers 
B)  goods and services purchased by all consumers (both foreign and domestic) 
C)  goods and services purchased by the government 
D)  investment goods purchased by businesses 
E)  exports purchased by foreign buyers

Question 17

The price of a typical basket of goods and services in one period divided by the price of the same basket in a different year is a(n)

Accepted Answer

A)  price index 
B)  TV-violence index 
C)  employment index 
D)  output index 
E)  unemployment index 
A)  price index 
B)  TV-violence index 
C)  employment index 
D)  output index 
E)  unemployment index

Question 18

The CPI's approach is to

Accepted Answer

A)  track the cost of the CPI market basket,which is the collection of goods and services that the typical consumer buys. 
B)  track the cost of the CPI market basket,which is the collection of every good and service that is for sale in the U.S. 
C)  track the cost of housing,and food and beverage expenditures. 
D)  track the cost of the CPI market basket,which is the collection of every good that is for sale in the U.S. 
E)  track the cost of the CPI market basket,which is the collection of goods that the typical consumer buys. 
A)  track the cost of the CPI market basket,which is the collection of goods and services that the typical consumer buys. 
B)  track the cost of the CPI market basket,which is the collection of every good and service that is for sale in the U.S. 
C)  track the cost of housing,and food and beverage expenditures. 
D)  track the cost of the CPI market basket,which is the collection of every good that is for sale in the U.S. 
E)  track the cost of the CPI market basket,which is the collection of goods that the typical consumer buys.

Question 19

How are the prices of various goods and services determined for the Consumer Price Index (CPI)?

Accepted Answer

A)  By an extensive annual household survey 
B)  By an extensive monthly survey of stores,apartments,and owner-occupied homes 
C)  By an extensive annual survey of stores,apartments,and owner-occupied homes 
D)  By an extensive monthly household survey 
E)  Through the same survey used to determine the typical market basket 
A)  By an extensive annual household survey 
B)  By an extensive monthly survey of stores,apartments,and owner-occupied homes 
C)  By an extensive annual survey of stores,apartments,and owner-occupied homes 
D)  By an extensive monthly household survey 
E)  Through the same survey used to determine the typical market basket

Question 20

A decline in real income

Accepted Answer

A)  can occur only if there is a decline in nominal income 
B)  can occur only if there is an increase in the price level 
C)  can occur only if there is either a decline in nominal income or an increase in the price level 
D)  cannot occur if there is either an increase in nominal wages or a decline in the price level 
E)  can occur only if there is a decline in the price level 
A)  can occur only if there is a decline in nominal income 
B)  can occur only if there is an increase in the price level 
C)  can occur only if there is either a decline in nominal income or an increase in the price level 
D)  cannot occur if there is either an increase in nominal wages or a decline in the price level 
E)  can occur only if there is a decline in the price level

Exam 19: The Price Level and Inflation

If the price level is falling,the economy is experiencing

Suppose the CPI has been overstating the increase in the cost of living by 1% for 25 years,the total impact of that 25 years later is

Inflation will generally redistribute purchasing power when

The GDP Price Index and the Consumer Price Index measure prices of the same set of goods.

Which of the following statements about unanticipated inflation is true?

Suppose you had the following information regarding the economy: Which of the following best describes the behavior of the real wage rate?

As of December 2008,housing accounted for about ________ of the typical consumer's spending.

The formula for determining a real variable is real variable =

The Bureau of Labor Statistics complies two different types of market baskets,to reflect the spending habits of two different types of people:

When a payment is indexed to inflation and the price index understates inflation,

The real wage can increase only if the nominal wage increases.

The real wage rate measures

In which of the following situations would an individual experience an increase in real wages?

In which of the following situations would a person be best off in real terms?

Which of the following statements is true about the behavior of the CPI?

The CPI includes the prices of

The price of a typical basket of goods and services in one period divided by the price of the same basket in a different year is a(n)

The CPI's approach is to

How are the prices of various goods and services determined for the Consumer Price Index (CPI)?

A decline in 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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