Question 1

Suppose you are seeking a real wage increase of 2% and you expect inflation to be 3%.What nominal wage increase should you seek?

Accepted Answer

A)  2.0% 
B)  3.0% 
C)  1.0% 
D)  5.0% 
E)  1.5% 
A)  2.0% 
B)  3.0% 
C)  1.0% 
D)  5.0% 
E)  1.5%

Question 2

Lorrie will receive a nominal wage increase of 10 percent this year.The inflation rate was 5 percent last year and is predicted to be 8 percent this year.If the economic forecast is correct,her real wage this year

Accepted Answer

A)  will increase by approximately 2 percent 
B)  will increase by approximately 8 percent 
C)  will increase by approximately 5 percent 
D)  will remain the same 
E)  cannot be calculated without knowing the number of dollars by which her wage increases 
A)  will increase by approximately 2 percent 
B)  will increase by approximately 8 percent 
C)  will increase by approximately 5 percent 
D)  will remain the same 
E)  cannot be calculated without knowing the number of dollars by which her wage increases

Question 3

Double-digit inflation

Accepted Answer

A)  has occurred in the United States in only three of the past fifty years 
B)  has occurred throughout most of United States history 
C)  is also called creeping inflation 
D)  was the norm in the United States until the end of the Vietnam War 
E)  has not occurred in the United States since the Great Depression 
A)  has occurred in the United States in only three of the past fifty years 
B)  has occurred throughout most of United States history 
C)  is also called creeping inflation 
D)  was the norm in the United States until the end of the Vietnam War 
E)  has not occurred in the United States since the Great Depression

Question 4

If a lender charged a 4 percent nominal interest rate and the expected inflation rate is 1 percent,what is the difference between the real rate the lender received and the real rate the lender expected when actual inflation ended up being 1 percent?

Accepted Answer

A)  2 percent 
B)  4 percent 
C)  -4 percent 
D)  1 percent 
E)  0 percent 
A)  2 percent 
B)  4 percent 
C)  -4 percent 
D)  1 percent 
E)  0 percent

Question 5

The consumer price index (CPI)excludes all of the following goods and services except one.Which type of good is included in the CPI?

Accepted Answer

A)  Raw materials 
B)  Imported goods purchased by consumers 
C)  Machinery purchased by firms 
D)  Goods purchased by the government 
E)  Intermediate goods 
A)  Raw materials 
B)  Imported goods purchased by consumers 
C)  Machinery purchased by firms 
D)  Goods purchased by the government 
E)  Intermediate goods

Question 6

Suppose workers agreed to a contract that guaranteed a real wage increase of 3 percent per year.If the inflation rate was 7 percent over the following year,what is the required increase in the nominal wage to meet the contract requirements?

Accepted Answer

A)  10 percent 
B)  3 percent 
C)  4 percent 
D)  7 percent 
E)  1 percent 
A)  10 percent 
B)  3 percent 
C)  4 percent 
D)  7 percent 
E)  1 percent

Question 7

Most economists believe that the CPI

Accepted Answer

A)  accurately measures the inflation rate 
B)  accurately measures the inflation rate except during years when there are major economic shocks like the Arab oil embargo 
C)  slightly underestimates the inflation rate 
D)  seriously underestimates the inflation rate 
E)  overstates the inflation rate 
A)  accurately measures the inflation rate 
B)  accurately measures the inflation rate except during years when there are major economic shocks like the Arab oil embargo 
C)  slightly underestimates the inflation rate 
D)  seriously underestimates the inflation rate 
E)  overstates the inflation rate

Question 8

The real interest rate is calculated as the

Accepted Answer

A)  expected rate of inflation divided by the nominal interest rate 
B)  real GDP plus the expected rate of inflation 
C)  nominal interest rate minus real GDP 
D)  nominal interest rate minus the expected rate of inflation 
E)  real GDP multiplied by the expected rate of inflation 
A)  expected rate of inflation divided by the nominal interest rate 
B)  real GDP plus the expected rate of inflation 
C)  nominal interest rate minus real GDP 
D)  nominal interest rate minus the expected rate of inflation 
E)  real GDP multiplied by the expected rate of inflation

Question 9

Suppose that the government reports the following information on violent crime in a certain area: there were 1100 incidents in the base year (2007)and 1155 incidents in 2008.The person collecting these data wants to present them in the form of an index.What is the index for 2008?

Accepted Answer

A)  100.0 
B)  110.0 
C)  116.0 
D)  105.0 
E)  95.2 
A)  100.0 
B)  110.0 
C)  116.0 
D)  105.0 
E)  95.2

Question 10

To the extent that the CPI does not accurately measure the true price level,

Accepted Answer

A)  the BLS will change the underlying market basket of goods 
B)  it is useless 
C)  it exaggerates the true cost of living 
D)  it results in underindexation of social security payments 
E)  it underestimates the true cost of living 
A)  the BLS will change the underlying market basket of goods 
B)  it is useless 
C)  it exaggerates the true cost of living 
D)  it results in underindexation of social security payments 
E)  it underestimates the true cost of living

Question 11

If Social Security is over-indexed,real payments

Accepted Answer

A)  are lower than they would be if they were correctly indexed. 
B)  are higher than they would be if they were correctly indexed. 
C)  are constant. 
D)  are decreasing. 
E)  are under-indexed. 
A)  are lower than they would be if they were correctly indexed. 
B)  are higher than they would be if they were correctly indexed. 
C)  are constant. 
D)  are decreasing. 
E)  are under-indexed.

Question 12

If the Consumer Price Index was 102.2 in 2007 and 104.9 in 2008,we can conclude that

Accepted Answer

A)  the prices of all consumer goods were higher in 2008 than in 2007 
B)  the prices of all consumer goods were lower in 2008 than in 2007 
C)  the price level fell from 2007 to 2008 
D)  the price level rose from 2007 to 2008 
E)  the base year was 2001 
A)  the prices of all consumer goods were higher in 2008 than in 2007 
B)  the prices of all consumer goods were lower in 2008 than in 2007 
C)  the price level fell from 2007 to 2008 
D)  the price level rose from 2007 to 2008 
E)  the base year was 2001

Question 13

Which of the following would be example(s)of the resource cost of inflation?

Accepted Answer

A)  Shopping several web sites to check prices 
B)  Changing price tags 
C)  Re-printing menus 
D)  The wear and tear on your car from additional trips to the bank 
E)  All of the above 
A)  Shopping several web sites to check prices 
B)  Changing price tags 
C)  Re-printing menus 
D)  The wear and tear on your car from additional trips to the bank 
E)  All of the above

Question 14

Which of the following is a reason why the Consumer Price Index (CPI)is not calculated as a simple average of all prices?

Accepted Answer

A)  Some goods experience large price changes and the CPI would be too variable if computed by a simple average. 
B)  Goods differ in their importance in the average consumer's budget. 
C)  Some goods never experience price changes and the CPI would not be variable enough if computed as a simple average. 
D)  It would be difficult to compute a price index using a simple average of all prices. 
E)  Actually,the CPI is a simple average of all prices. 
A)  Some goods experience large price changes and the CPI would be too variable if computed by a simple average. 
B)  Goods differ in their importance in the average consumer's budget. 
C)  Some goods never experience price changes and the CPI would not be variable enough if computed as a simple average. 
D)  It would be difficult to compute a price index using a simple average of all prices. 
E)  Actually,the CPI is a simple average of all prices.

Question 15

If inflation is correctly anticipated,in a transaction between borrowers and lenders,inflation

Accepted Answer

A)  will not reduce purchasing power of the money paid back 
B)  will redistribute purchasing power from borrowers to lenders 
C)  will not redistribute purchasing power 
D)  will redistribute purchasing power from to lenders to borrowers 
E)  cannot be taken into consideration when a loan is negotiated 
A)  will not reduce purchasing power of the money paid back 
B)  will redistribute purchasing power from borrowers to lenders 
C)  will not redistribute purchasing power 
D)  will redistribute purchasing power from to lenders to borrowers 
E)  cannot be taken into consideration when a loan is negotiated

Question 16

The Consumer Price Index excludes all of the following,except one.Which one is included in the CPI?

Accepted Answer

A)  Services purchased directly by consumers 
B)  Raw materials 
C)  Services purchased by the government 
D)  Machinery purchased by firms 
E)  Intermediate goods purchased by firms 
A)  Services purchased directly by consumers 
B)  Raw materials 
C)  Services purchased by the government 
D)  Machinery purchased by firms 
E)  Intermediate goods purchased by firms

Question 17

The real interest rate on a loan

Accepted Answer

A)  is the amount that the consumer agrees to pay 
B)  is always the same as the nominal rate 
C)  is always greater than the nominal rate 
D)  is only of concern when serious inflation occurs 
E)  is the percentage increase in the lender's purchasing power that results from making the loan 
A)  is the amount that the consumer agrees to pay 
B)  is always the same as the nominal rate 
C)  is always greater than the nominal rate 
D)  is only of concern when serious inflation occurs 
E)  is the percentage increase in the lender's purchasing power that results from making the loan

Question 18

When the value of a payment is adjusted in proportion to changes in the CPI,economists refer to that as

Accepted Answer

A)  nominalization 
B)  realization 
C)  indexation 
D)  stabilization 
E)  depreciation 
A)  nominalization 
B)  realization 
C)  indexation 
D)  stabilization 
E)  depreciation

Question 19

Inflation is harmful to society because it often

Accepted Answer

A)  causes consumers' purchasing power to decline 
B)  causes sellers' costs to increase 
C)  causes nominal wages to fall 
D)  causes purchasing power to be redistributed in haphazard ways 
E)  has no effect at all on anyone's purchasing power 
A)  causes consumers' purchasing power to decline 
B)  causes sellers' costs to increase 
C)  causes nominal wages to fall 
D)  causes purchasing power to be redistributed in haphazard ways 
E)  has no effect at all on anyone's purchasing power

Question 20

Use the table below to find the real wage in 2008 (in 2007 dollars).

Accepted Answer

A)  $13.00 
B)  $11.82 
C)  $14.30 
D)  $11.78 
E)  $11.48 
A)  $13.00 
B)  $11.82 
C)  $14.30 
D)  $11.78 
E)  $11.48

Exam 19: The Price Level and Inflation

Suppose you are seeking a real wage increase of 2% and you expect inflation to be 3%.What nominal wage increase should you seek?

Lorrie will receive a nominal wage increase of 10 percent this year.The inflation rate was 5 percent last year and is predicted to be 8 percent this year.If the economic forecast is correct,her real wage this year

Double-digit inflation

If a lender charged a 4 percent nominal interest rate and the expected inflation rate is 1 percent,what is the difference between the real rate the lender received and the real rate the lender expected when actual inflation ended up being 1 percent?

The consumer price index (CPI)excludes all of the following goods and services except one.Which type of good is included in the CPI?

Suppose workers agreed to a contract that guaranteed a real wage increase of 3 percent per year.If the inflation rate was 7 percent over the following year,what is the required increase in the nominal wage to meet the contract requirements?

Most economists believe that the CPI

The real interest rate is calculated as the

Suppose that the government reports the following information on violent crime in a certain area: there were 1100 incidents in the base year (2007)and 1155 incidents in 2008.The person collecting these data wants to present them in the form of an index.What is the index for 2008?

To the extent that the CPI does not accurately measure the true price level,

If Social Security is over-indexed,real payments

If the Consumer Price Index was 102.2 in 2007 and 104.9 in 2008,we can conclude that

Which of the following would be example(s)of the resource cost of inflation?

Which of the following is a reason why the Consumer Price Index (CPI)is not calculated as a simple average of all prices?

If inflation is correctly anticipated,in a transaction between borrowers and lenders,inflation

The Consumer Price Index excludes all of the following,except one.Which one is included in the CPI?

The real interest rate on a loan

When the value of a payment is adjusted in proportion to changes in the CPI,economists refer to that as

Inflation is harmful to society because it often

Use the table below to find the real wage in 2008 (in 2007 dollars).

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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