Question 1

If the Consumer Price Index (CPI)increases from 100 to 125 and the nominal wage increases from $125 to $300,what is the change in the real wage?

Accepted Answer

A)  +$175 
B)  +$300 
C)  +$125 
D)  +$115 
E)  -$175 
A)  +$175 
B)  +$300 
C)  +$125 
D)  +$115 
E)  -$175

Question 2

Suppose that a labor union leader is trying to bargain for an increase in union workers' real wages of 5 percent.If he expected the price level to rise at a rate of 3 percent this year,how much would nominal wages need to increase for him to accomplish his objective?

Accepted Answer

A)  2 percent 
B)  3 percent 
C)  5 percent 
D)  8 percent 
E)  15 percent 
A)  2 percent 
B)  3 percent 
C)  5 percent 
D)  8 percent 
E)  15 percent

Question 3

Which of the following goods and services would be excluded from the CPI?

Accepted Answer

A)  Legal services 
B)  Used cars 
C)  French wines sold in the U.S. 
D)  Restaurant meals 
E)  Shares of stock in U.S.corporations 
A)  Legal services 
B)  Used cars 
C)  French wines sold in the U.S. 
D)  Restaurant meals 
E)  Shares of stock in U.S.corporations

Question 4

The resource cost of inflation refers to

Accepted Answer

A)  the opportunity cost of the resources spent coping with inflation 
B)  the redistribution of resources due to inflation 
C)  the lost purchasing power due to inflation 
D)  the lost real income due to inflation 
E)  the resources lost due to asking for higher nominal wage increase 
A)  the opportunity cost of the resources spent coping with inflation 
B)  the redistribution of resources due to inflation 
C)  the lost purchasing power due to inflation 
D)  the lost real income due to inflation 
E)  the resources lost due to asking for higher nominal wage increase

Question 5

Suppose the economy includes two distinct groups of people: wage earners and goods sellers.If the price level increases by 50 percent and nominal wages remain unchanged,

Accepted Answer

A)  there will be no redistribution of purchasing power because all private wage earners in the U.S.economy receive indexed wages 
B)  real wages will remain the same because nominal wages do not change 
C)  there will be no redistribution of purchasing power because only changes in real income can change the distribution of income 
D)  income will be redistributed from wage earners to goods sellers 
E)  income will be redistributed from goods sellers to wage earners 
A)  there will be no redistribution of purchasing power because all private wage earners in the U.S.economy receive indexed wages 
B)  real wages will remain the same because nominal wages do not change 
C)  there will be no redistribution of purchasing power because only changes in real income can change the distribution of income 
D)  income will be redistributed from wage earners to goods sellers 
E)  income will be redistributed from goods sellers to wage earners

Question 6

Which of the following describes the correct relationship among the nominal interest rate,the real interest rate,and the inflation rate?

Accepted Answer

A)  Real interest rate = nominal interest rate + inflation rate 
B)  Real interest rate = nominal interest rate - inflation rate 
C)  Nominal interest rate = real interest rate - inflation rate 
D)  Inflation rate = real interest rate - nominal interest rate 
E)  Inflation rate = nominal interest rate + real interest rate 
A)  Real interest rate = nominal interest rate + inflation rate 
B)  Real interest rate = nominal interest rate - inflation rate 
C)  Nominal interest rate = real interest rate - inflation rate 
D)  Inflation rate = real interest rate - nominal interest rate 
E)  Inflation rate = nominal interest rate + real interest rate

Question 7

Suppose that the inflation rate was 4 percent in 2002 and 3 percent in 2003.This would mean that

Accepted Answer

A)  the price level fell from 2002 to 2003 
B)  the price level fell at a faster rate in 2003 than in 2002 
C)  the price level rose at a faster rate in 2003 than in 2002 
D)  the price level rose at a slower rate in 2003 than in 2002 
E)  all prices in the economy rose at a rate of 3 percent in 2003 
A)  the price level fell from 2002 to 2003 
B)  the price level fell at a faster rate in 2003 than in 2002 
C)  the price level rose at a faster rate in 2003 than in 2002 
D)  the price level rose at a slower rate in 2003 than in 2002 
E)  all prices in the economy rose at a rate of 3 percent in 2003

Question 8

Use the table below to find the real wage in 2007 (in 2006 dollars).

Accepted Answer

A)  $8.06 
B)  $8.13 
C)  $8.39 
D)  $13.00 
E)  $7.81 
A)  $8.06 
B)  $8.13 
C)  $8.39 
D)  $13.00 
E)  $7.81

Question 9

In the following index,which year is most likely to be the base period: 2003 = 123.3;2004 = 145.3;2005 = 111.4;2006 = 100;2007 = 94.3?

Accepted Answer

A)  2003 
B)  2004 
C)  2005 
D)  2006 
E)  2007 
A)  2003 
B)  2004 
C)  2005 
D)  2006 
E)  2007

Question 10

Most economists believe that substitution behavior by consumers causes inflation measured by the Consumer Price Index (CPI)to overstate the true rate of inflation.

Accepted Answer

A) True 
 B)False

Question 11

If the CPI was 101.7 in 2006 and 101.5 in 2007,it can be concluded that

Accepted Answer

A)  2001 was the base year 
B)  all goods were more expensive in 2007 than in 2006 
C)  all goods were less expensive in 2007 than in 2006 
D)  all goods were less expensive in 2006 than in 2007 
E)  the price level fell from 2006 to 2007 
A)  2001 was the base year 
B)  all goods were more expensive in 2007 than in 2006 
C)  all goods were less expensive in 2007 than in 2006 
D)  all goods were less expensive in 2006 than in 2007 
E)  the price level fell from 2006 to 2007

Question 12

The term that refers to the price level rising at a low rate is

Accepted Answer

A)  hidden inflation 
B)  creeping inflation 
C)  repressed inflation 
D)  disinflation 
E)  deflation 
A)  hidden inflation 
B)  creeping inflation 
C)  repressed inflation 
D)  disinflation 
E)  deflation

Question 13

Social Security is indexed by the CPI.As a result

Accepted Answer

A)  it is "over-indexed." 
B)  it ignores inflation 
C)  it is "under-indexed." 
D)  it is "un-indexed." 
E)  it is "over-subscribed." 
A)  it is "over-indexed." 
B)  it ignores inflation 
C)  it is "under-indexed." 
D)  it is "un-indexed." 
E)  it is "over-subscribed."

Question 14

How is the typical market basket determined for the Consumer Price Index (CPI)?

Accepted Answer

A)  By the President 
B)  By the U.S.Congress 
C)  By a survey of the spending patterns of thousands of businesses 
D)  By a survey of the spending patterns of thousands of government agencies 
E)  By a survey of the spending patterns of thousands of households 
A)  By the President 
B)  By the U.S.Congress 
C)  By a survey of the spending patterns of thousands of businesses 
D)  By a survey of the spending patterns of thousands of government agencies 
E)  By a survey of the spending patterns of thousands of households

Question 15

Suppose the economy consists of two distinct groups: wage earners and goods sellers.If the price level increases by 30 percent and real wages increase by 30 percent,

Accepted Answer

A)  there will be no redistribution of purchasing power between goods sellers and wage earners 
B)  purchasing power will be redistributed from wage earners to goods sellers 
C)  purchasing power will be redistributed from goods sellers to wage earners 
D)  nominal wages will increase by 90 percent 
E)  nominal wages will decrease by 60 percent 
A)  there will be no redistribution of purchasing power between goods sellers and wage earners 
B)  purchasing power will be redistributed from wage earners to goods sellers 
C)  purchasing power will be redistributed from goods sellers to wage earners 
D)  nominal wages will increase by 90 percent 
E)  nominal wages will decrease by 60 percent

Question 16

Use the table below to find the inflation rate from 2007 to 2008.

Accepted Answer

A)  1.4% 
B)  0.6% 
C)  0% 
D)  -0.6% 
E)  -1.4% 
A)  1.4% 
B)  0.6% 
C)  0% 
D)  -0.6% 
E)  -1.4%

Question 17

Which of the following are considered sources of bias in the CPI?

Accepted Answer

A)  Prices changing too rapidly;substitution,new technologies;and quality changes. 
B)  Prices changing too rapidly;substitution;quality changes;and growth in discounting. 
C)  Quality changes;new technologies;prices changing too rapidly;and growth in discounting. 
D)  Substitution;new technologies;prices changing too rapidly;and growth in discounting. 
E)  Quality changes;new technologies;substitution;and growth in discounting. 
A)  Prices changing too rapidly;substitution,new technologies;and quality changes. 
B)  Prices changing too rapidly;substitution;quality changes;and growth in discounting. 
C)  Quality changes;new technologies;prices changing too rapidly;and growth in discounting. 
D)  Substitution;new technologies;prices changing too rapidly;and growth in discounting. 
E)  Quality changes;new technologies;substitution;and growth in discounting.

Question 18

A labor union anticipates a 7 percent inflation rate in each of the next three years.It wants to obtain a 3 percent increase in real wages in each of those three years.To obtain this goal,the requisite nominal wage hike it should negotiate is

Accepted Answer

A)  7 percent each year 
B)  3 percent each year 
C)  10 percent each year 
D)  10 percent the first year and 3 percent each year thereafter 
E)  21 percent the first year and 3 percent each year thereafter 
A)  7 percent each year 
B)  3 percent each year 
C)  10 percent each year 
D)  10 percent the first year and 3 percent each year thereafter 
E)  21 percent the first year and 3 percent each year thereafter

Question 19

If a newspaper reporter wanted to learn about changes in the U.S.price levels,she would probably get that information by looking at the

Accepted Answer

A)  real gross domestic product 
B)  consumer price index 
C)  latest press release from the Council of Economic Indicators 
D)  nominal gross domestic product 
E)  gross national product 
A)  real gross domestic product 
B)  consumer price index 
C)  latest press release from the Council of Economic Indicators 
D)  nominal gross domestic product 
E)  gross national product

Question 20

If a lender wants a real return of 6 percent and she expects inflation to be 4 percent,which of the following is the correct nominal interest rate to charge?

Accepted Answer

A)  4 percent 
B)  6 percent 
C)  2 percent 
D)  10 percent 
E)  -2 percent 
A)  4 percent 
B)  6 percent 
C)  2 percent 
D)  10 percent 
E)  -2 percent

Exam 19: The Price Level and Inflation

If the Consumer Price Index (CPI)increases from 100 to 125 and the nominal wage increases from $125 to $300,what is the change in the real wage?

Suppose that a labor union leader is trying to bargain for an increase in union workers' real wages of 5 percent.If he expected the price level to rise at a rate of 3 percent this year,how much would nominal wages need to increase for him to accomplish his objective?

Which of the following goods and services would be excluded from the CPI?

The resource cost of inflation refers to

Suppose the economy includes two distinct groups of people: wage earners and goods sellers.If the price level increases by 50 percent and nominal wages remain unchanged,

Which of the following describes the correct relationship among the nominal interest rate,the real interest rate,and the inflation rate?

Suppose that the inflation rate was 4 percent in 2002 and 3 percent in 2003.This would mean that

Use the table below to find the real wage in 2007 (in 2006 dollars).

In the following index,which year is most likely to be the base period: 2003 = 123.3;2004 = 145.3;2005 = 111.4;2006 = 100;2007 = 94.3?

Most economists believe that substitution behavior by consumers causes inflation measured by the Consumer Price Index (CPI)to overstate the true rate of inflation.

If the CPI was 101.7 in 2006 and 101.5 in 2007,it can be concluded that

The term that refers to the price level rising at a low rate is

Social Security is indexed by the CPI.As a result

How is the typical market basket determined for the Consumer Price Index (CPI)?

Suppose the economy consists of two distinct groups: wage earners and goods sellers.If the price level increases by 30 percent and real wages increase by 30 percent,

Use the table below to find the inflation rate from 2007 to 2008.

Which of the following are considered sources of bias in the CPI?

A labor union anticipates a 7 percent inflation rate in each of the next three years.It wants to obtain a 3 percent increase in real wages in each of those three years.To obtain this goal,the requisite nominal wage hike it should negotiate is

If a newspaper reporter wanted to learn about changes in the U.S.price levels,she would probably get that information by looking at the

If a lender wants a real return of 6 percent and she expects inflation to be 4 percent,which of the following is the correct nominal interest rate to charge?

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

Filters