Question 1

If you borrow money at a nominal interest rate of 5 percent and the inflation rate is 10 percent,what real interest rate will you pay?

Accepted Answer

A)  -5 percent 
B)  0.5 percent 
C)  2 percent 
D)  5 percent 
E)  10 percent 
A)  -5 percent 
B)  0.5 percent 
C)  2 percent 
D)  5 percent 
E)  10 percent

Question 2

As of December 2008,the most important category in the CPI is

Accepted Answer

A)  medical care 
B)  education 
C)  transportation 
D)  food and beverages 
E)  housing. 
A)  medical care 
B)  education 
C)  transportation 
D)  food and beverages 
E)  housing.

Question 3

The highest annual inflation rate experienced in the United States during the past 50 years has been around

Accepted Answer

A)  3 percent 
B)  9 percent 
C)  14 percent 
D)  27 percent 
E)  1,000 percent 
A)  3 percent 
B)  9 percent 
C)  14 percent 
D)  27 percent 
E)  1,000 percent

Question 4

Assume that the professors at a local college have gone without a pay increase for 4 years during a tough time.Suppose that things start to look up and the President of the college wants to make up for lost time.If the CPI in 2002 was 150 and 175 in 2006,how much will salaries have to increase to bring the faculty back up to their real income from 2002?

Accepted Answer

A)  175.0% 
B)  150.0% 
C)  25.0% 
D)  16.7% 
E)  14.3% 
A)  175.0% 
B)  150.0% 
C)  25.0% 
D)  16.7% 
E)  14.3%

Question 5

-Refer to Figure 7-1.Based on the figure,

Accepted Answer

A)  the price level has fallen since 1965 
B)  the price level in 1985 was lower than in 1980 
C)  the price level fell from 1980 to 1990 
D)  the price level has not fallen since 1965 
E)  the base year is 1965 
A)  the price level has fallen since 1965 
B)  the price level in 1985 was lower than in 1980 
C)  the price level fell from 1980 to 1990 
D)  the price level has not fallen since 1965 
E)  the base year is 1965

Question 6

Approximately how often is the Consumer Price Index (CPI)market basket updated?

Accepted Answer

A)  Every 10 years 
B)  Every 25 years 
C)  Every year 
D)  Every 2 years 
E)  Every 5 years 
A)  Every 10 years 
B)  Every 25 years 
C)  Every year 
D)  Every 2 years 
E)  Every 5 years

Question 7

Suppose that the Department of Transportation is compiling data on traffic accidents and it wants to present the data in the form of an index.If there were 2,000 accidents in the base year,2007,and 2,100 accidents in 2008,what is the value of the index for 2008?

Accepted Answer

A)  95.2 
B)  100 
C)  105 
D)  200 
E)  210 
A)  95.2 
B)  100 
C)  105 
D)  200 
E)  210

Question 8

Suppose a local union has a contract that calls for the nominal wage to increase by 5 percent plus 100 percent of any increase in the CPI.If the CPI increases by 4% and there is a 1% positive bias in the inflation rate,by how much would nominal wages unnecessarily increase?

Accepted Answer

A)  9 percent 
B)  1 percent 
C)  5 percent 
D)  3 percent 
E)  4 percent 
A)  9 percent 
B)  1 percent 
C)  5 percent 
D)  3 percent 
E)  4 percent

Question 9

The CPI is the price index used to calculate real GDP.

Accepted Answer

A) True 
 B)False

Question 10

If we read that the CPI had value of 120 in 2005,we would know that

Accepted Answer

A)  the typical market basket in 2005 was 20 percent more expensive than in the previous year 
B)  the typical market basket in 2005 was 120 percent more expensive than in the base year 
C)  the typical market basket in the base year was 120 percent more expensive than in 2005 
D)  the typical market basket in 2005 was 20 percent more expensive than in the base year 
E)  the cost of a loaf of bread is higher now than it has been during the past ten years 
A)  the typical market basket in 2005 was 20 percent more expensive than in the previous year 
B)  the typical market basket in 2005 was 120 percent more expensive than in the base year 
C)  the typical market basket in the base year was 120 percent more expensive than in 2005 
D)  the typical market basket in 2005 was 20 percent more expensive than in the base year 
E)  the cost of a loaf of bread is higher now than it has been during the past ten years

Question 11

If the Consumer Price Index (CPI)decreases from 100 to 50 and the nominal wage decreases from $200 to $50,what is the change in the real wage in terms of the beginning year's dollars?

Accepted Answer

A)  +$200 
B)  -$100 
C)  +$50 
D)  -$200 
E)  +$250 
A)  +$200 
B)  -$100 
C)  +$50 
D)  -$200 
E)  +$250

Question 12

If inflation is perfectly anticipated,benefits are indexed,and there are no restrictions on contracts,which group loses purchasing power because of inflation?

Accepted Answer

A)  Borrowers,lenders and retirees 
B)  Only borrowers 
C)  Neither lenders,borrowers,nor retirees 
D)  Only lenders 
E)  Only retirees 
A)  Borrowers,lenders and retirees 
B)  Only borrowers 
C)  Neither lenders,borrowers,nor retirees 
D)  Only lenders 
E)  Only retirees

Question 13

Suppose that over time,consumers used discount stores at an increasing rate,the CPI would tend to be

Accepted Answer

A)  accurate 
B)  underestimated because consumers would buy goods and services at lower prices than those collected by the BLS 
C)  underestimated because consumers would buy goods and services at higher prices than those collected by the BLS 
D)  overestimated because consumers would buy goods and services at lower prices than those collected by the BLS 
E)  overestimated because consumers would buy goods and services at higher prices than those collected by the BLS 
A)  accurate 
B)  underestimated because consumers would buy goods and services at lower prices than those collected by the BLS 
C)  underestimated because consumers would buy goods and services at higher prices than those collected by the BLS 
D)  overestimated because consumers would buy goods and services at lower prices than those collected by the BLS 
E)  overestimated because consumers would buy goods and services at higher prices than those collected by the BLS

Question 14

If the CPI for 2008 was 112,the typical market basket purchased that year would cost

Accepted Answer

A)  12 percent more than the same market basket purchased the previous year 
B)  112 percent more than the same market basket purchased the previous year 
C)  12 percent more than the same market basket purchased in the base year 
D)  112 percent more than the same market basket purchased in the base year 
E)  more than the same market basket purchased during any previous year 
A)  12 percent more than the same market basket purchased the previous year 
B)  112 percent more than the same market basket purchased the previous year 
C)  12 percent more than the same market basket purchased in the base year 
D)  112 percent more than the same market basket purchased in the base year 
E)  more than the same market basket purchased during any previous year

Question 15

Substitution bias

Accepted Answer

A)  is one factor that causes the Consumer Price Index to underestimate the inflation rate 
B)  is caused by the poor quality of many products 
C)  is one of the primary causes of inflation 
D)  involves consumer behavior that helps explain why the Consumer Price Index overestimates the inflation rate 
E)  suggests most economists substitute other price indices for the flawed Consumer Price Index 
A)  is one factor that causes the Consumer Price Index to underestimate the inflation rate 
B)  is caused by the poor quality of many products 
C)  is one of the primary causes of inflation 
D)  involves consumer behavior that helps explain why the Consumer Price Index overestimates the inflation rate 
E)  suggests most economists substitute other price indices for the flawed Consumer Price Index

Question 16

The Consumer Price Index (CPI)is an index of the cost of a market basket of goods purchased by a typical household.

Accepted Answer

A) True 
 B)False

Question 17

When a new discount retailer,like Wal-Mart,opens a store,people save money.The CPI

Accepted Answer

A)  completely ignores this 
B)  accounts for every implication of this 
C)  misses the reduction in what people pay when they shift but captures the effect from that point on. 
D)  does not count sales at discount stores. 
E)  misses the reduction in what people pay only for stores in mid-sized cities. 
A)  completely ignores this 
B)  accounts for every implication of this 
C)  misses the reduction in what people pay when they shift but captures the effect from that point on. 
D)  does not count sales at discount stores. 
E)  misses the reduction in what people pay only for stores in mid-sized cities.

Question 18

Everything else constant,who is least likely to lose from unexpected inflation?

Accepted Answer

A)  A retired person whose pension payments are fixed in dollars 
B)  A person with a large amount of money deposited in a savings account 
C)  A bank scheduled to receive fixed nominal mortgage payments 
D)  A homeowner scheduled to make fixed nominal mortgage payments 
E)  A consumer who spends extra time shopping for the lowest prices 
A)  A retired person whose pension payments are fixed in dollars 
B)  A person with a large amount of money deposited in a savings account 
C)  A bank scheduled to receive fixed nominal mortgage payments 
D)  A homeowner scheduled to make fixed nominal mortgage payments 
E)  A consumer who spends extra time shopping for the lowest prices

Question 19

To approximate the percentage change in real income over any period of time,

Accepted Answer

A)  we need to subtract the percentage change in nominal income from the inflation rate 
B)  we need to subtract the rate of inflation from the percentage change in nominal income 
C)  we need to divide the percentage change in nominal income by the inflation rate 
D)  we need to multiply the change in income by the inflation rate 
E)  we need to multiply the nominal percentage change in income by the percentage change in inflation rate 
A)  we need to subtract the percentage change in nominal income from the inflation rate 
B)  we need to subtract the rate of inflation from the percentage change in nominal income 
C)  we need to divide the percentage change in nominal income by the inflation rate 
D)  we need to multiply the change in income by the inflation rate 
E)  we need to multiply the nominal percentage change in income by the percentage change in inflation rate

Question 20

In general,a higher-than-anticipated inflation rate

Accepted Answer

A)  helps everyone 
B)  hurts everyone 
C)  helps creditors and harms debtors 
D)  helps debtors and harms creditors 
E)  helps sellers 
A)  helps everyone 
B)  hurts everyone 
C)  helps creditors and harms debtors 
D)  helps debtors and harms creditors 
E)  helps sellers

Exam 19: The Price Level and Inflation

If you borrow money at a nominal interest rate of 5 percent and the inflation rate is 10 percent,what real interest rate will you pay?

As of December 2008,the most important category in the CPI is

The highest annual inflation rate experienced in the United States during the past 50 years has been around

-Refer to Figure 7-1.Based on the figure,

Approximately how often is the Consumer Price Index (CPI)market basket updated?

Suppose that the Department of Transportation is compiling data on traffic accidents and it wants to present the data in the form of an index.If there were 2,000 accidents in the base year,2007,and 2,100 accidents in 2008,what is the value of the index for 2008?

Suppose a local union has a contract that calls for the nominal wage to increase by 5 percent plus 100 percent of any increase in the CPI.If the CPI increases by 4% and there is a 1% positive bias in the inflation rate,by how much would nominal wages unnecessarily increase?

The CPI is the price index used to calculate real GDP.

If we read that the CPI had value of 120 in 2005,we would know that

If the Consumer Price Index (CPI)decreases from 100 to 50 and the nominal wage decreases from $200 to $50,what is the change in the real wage in terms of the beginning year's dollars?

If inflation is perfectly anticipated,benefits are indexed,and there are no restrictions on contracts,which group loses purchasing power because of inflation?

Suppose that over time,consumers used discount stores at an increasing rate,the CPI would tend to be

If the CPI for 2008 was 112,the typical market basket purchased that year would cost

Substitution bias

The Consumer Price Index (CPI)is an index of the cost of a market basket of goods purchased by a typical household.

When a new discount retailer,like Wal-Mart,opens a store,people save money.The CPI

Everything else constant,who is least likely to lose from unexpected inflation?

To approximate the percentage change in real income over any period of time,

In general,a higher-than-anticipated inflation rate

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