Question 1

What is the underlying concept behind the price confusion problem?

Accepted Answer

During a time of inflation, people spend money rapidly because once you have possession of a good, its real value doesn't decrease. If you hold money, its real value falls in the face of inflation. This rapid consumer spending causes a problem for producers because they are uncertain whether the increased demand for their goods is due to inflation (if so, they should not expand facilities) or due to relative preference changes (if so, they should expand facilities). The greater price they are able to command for their product may or may not be due to inflation; thus the "signal" of the higher price must be correctly extracted or interpreted to determine whether the higher price or demand is due to inflation or to an actual preference change by consumers.

Question 2

If the price of industrial plastic injection molding machines rose by 20% and the price of oranges fell by 20%, then:

Accepted Answer

A)  the Consumer Price Index (CPI) would remain unchanged. 
B)  the CPI would rise if oranges had a greater weight. 
C)  the CPI would rise because plastic injection molding machines weigh more physically per unit. 
D)  the CPI would fall because people buy more oranges than plastic injection molding machines. 
E)  the CPI would fall by the weighted value of oranges in the CPI, but because industrial plastic injection molding machines are not a consumer good, they would not affect the CPI. 
A)  the Consumer Price Index (CPI) would remain unchanged. 
B)  the CPI would rise if oranges had a greater weight. 
C)  the CPI would rise because plastic injection molding machines weigh more physically per unit. 
D)  the CPI would fall because people buy more oranges than plastic injection molding machines. 
E)  the CPI would fall by the weighted value of oranges in the CPI, but because industrial plastic injection molding machines are not a consumer good, they would not affect the CPI. E

Question 3

Using the table below, compute the consumer price index (CPI) in 2007 using 2006 as the base year. Show all your work.

Accepted Answer

CPI = [890/750] * 100 = 118.67

Question 4

Inflation can create uncertainty by making:

Accepted Answer

A)  the real value of past payments uncertain. 
B)  the nominal value of past payments uncertain. 
C)  the real value of future payments uncertain. 
D)  the nominal value of future payments uncertain. 
E)  wages unstable. 
A)  the real value of past payments uncertain. 
B)  the nominal value of past payments uncertain. 
C)  the real value of future payments uncertain. 
D)  the nominal value of future payments uncertain. 
E)  wages unstable.

Question 5

Typically the consumer price index (CPI) is calculated by:

Accepted Answer

A)  checking the prices of all goods in 38 geographic locations. 
B)  checking the prices of only consumer goods in all populated places in the United States (using the Census Bureau's definition of a populated place). 
C)  checking the prices of about 8,000 goods in about 38 locations across the United States. 
D)  checking the prices of about 8,000 goods in about 38 locations in North America. 
E)  checking the prices of about 10,000 goods in about 75 locations in the United States. 
A)  checking the prices of all goods in 38 geographic locations. 
B)  checking the prices of only consumer goods in all populated places in the United States (using the Census Bureau's definition of a populated place). 
C)  checking the prices of about 8,000 goods in about 38 locations across the United States. 
D)  checking the prices of about 8,000 goods in about 38 locations in North America. 
E)  checking the prices of about 10,000 goods in about 75 locations in the United States.

Question 6

Oranges become more expensive in 2008 at Ukrop's in Charlottesville, Virginia. This means:

Accepted Answer

A)  the consumer price index (CPI) will rise in 2008 if, and only if, Charlottesville is one of the 38 indexed geographic locations and oranges are one of the 8,000 goods included in the CPI. 
B)  the CPI will almost certainly rise in 2008, even if Charlottesville is not included, as long as oranges are included and become more expensive on average at the other indexed locations. 
C)  the CPI will likely fall if the average weighted price of oranges increases in the United States and the price of oranges at Ukrop's makes almost no difference in the CPI. 
D)  the CPI might rise or fall and the price of oranges at Ukrop's could make a very small difference in the CPI if oranges at Ukrop's are included. However, oranges would be a relatively small portion of the entire CPI, if they are included in it at all. 
E)  orange prices are never included in the CPI because the creator of the CPI, Milton Marquis, did not like oranges. 
A)  the consumer price index (CPI) will rise in 2008 if, and only if, Charlottesville is one of the 38 indexed geographic locations and oranges are one of the 8,000 goods included in the CPI. 
B)  the CPI will almost certainly rise in 2008, even if Charlottesville is not included, as long as oranges are included and become more expensive on average at the other indexed locations. 
C)  the CPI will likely fall if the average weighted price of oranges increases in the United States and the price of oranges at Ukrop's makes almost no difference in the CPI. 
D)  the CPI might rise or fall and the price of oranges at Ukrop's could make a very small difference in the CPI if oranges at Ukrop's are included. However, oranges would be a relatively small portion of the entire CPI, if they are included in it at all. 
E)  orange prices are never included in the CPI because the creator of the CPI, Milton Marquis, did not like oranges.

Question 7

Assume tuition and fees at North Carolina State University cost $4,259 in 2004 and $7,787 in 2012. If the price index was 184 in 2004 and 226 in 2012, then we could say:

Accepted Answer

A)  tuition has increased more slowly than inflation. 
B)  tuition has increased more rapidly than inflation. 
C)  tuition has increased at about the same rate as inflation. 
D)  nominal tuition has decreased. 
E)  tuition suffers from money illusion due to inflation. 
A)  tuition has increased more slowly than inflation. 
B)  tuition has increased more rapidly than inflation. 
C)  tuition has increased at about the same rate as inflation. 
D)  nominal tuition has decreased. 
E)  tuition suffers from money illusion due to inflation.

Question 8

Refer to the following figure when answering the next questions:  
-Referring to the figure, we can observe that:

Accepted Answer

A)  inflation seemed to stabilize in the early years, 1996-1999, but it then spiked between 2002 and 2004. 
B)  inflation was always under control in every year shown. 
C)  there was a relatively constant increase in inflation throughout the entire period shown. 
D)  inflation tended to fall consistently throughout the entire period shown. 
E)  there were periods of inflation and deflation depicted in the chart. 
A)  inflation seemed to stabilize in the early years, 1996-1999, but it then spiked between 2002 and 2004. 
B)  inflation was always under control in every year shown. 
C)  there was a relatively constant increase in inflation throughout the entire period shown. 
D)  inflation tended to fall consistently throughout the entire period shown. 
E)  there were periods of inflation and deflation depicted in the chart.

Question 9

Deflation:

Accepted Answer

A)  automatically implies that, on average, everyone is better off because prices have fallen. 
B)  is the same as disinflation; it means the rate of inflation has fallen. 
C)  will make you better off if your nominal wages fall more slowly than prices. 
D)  will make you better off if your nominal wages fall more rapidly than prices. 
E)  will make you better off if your real wages fall more rapidly than prices. 
A)  automatically implies that, on average, everyone is better off because prices have fallen. 
B)  is the same as disinflation; it means the rate of inflation has fallen. 
C)  will make you better off if your nominal wages fall more slowly than prices. 
D)  will make you better off if your nominal wages fall more rapidly than prices. 
E)  will make you better off if your real wages fall more rapidly than prices.

Question 10

Consider a nation in which the price index last year was 130 and this year it is 150. Which statement is correct?

Accepted Answer

A)  Inflation was 20% this year. 
B)  Deflation was 20% this year. 
C)  Housing prices must have risen. 
D)  Inflation was 38% this year. 
E)  Deflation was 38% this year. 
A)  Inflation was 20% this year. 
B)  Deflation was 20% this year. 
C)  Housing prices must have risen. 
D)  Inflation was 38% this year. 
E)  Deflation was 38% this year.

Question 11

Arguably, the increases in housing prices in 2005-2006:

Accepted Answer

A)  caused a menu cost problem for producers. 
B)  caused a price confusion problem for producers. 
C)  caused a money illusion problem for producers. 
D)  caused future price uncertainty for producers. 
E)  caused a money illusion problem for consumers. 
A)  caused a menu cost problem for producers. 
B)  caused a price confusion problem for producers. 
C)  caused a money illusion problem for producers. 
D)  caused future price uncertainty for producers. 
E)  caused a money illusion problem for consumers.

Question 12

Inflation occurs:

Accepted Answer

A)  when all prices in the economy rise. 
B)  when the prices of some goods rise and prices of some goods fall, but more goods have price increases than decreases. 
C)  when the prices of some goods rise and prices of some goods fall, but fewer goods have price increases than decreases. 
D)  when the overall level of prices rises. 
E)  when all prices in the economy fall. 
A)  when all prices in the economy rise. 
B)  when the prices of some goods rise and prices of some goods fall, but more goods have price increases than decreases. 
C)  when the prices of some goods rise and prices of some goods fall, but fewer goods have price increases than decreases. 
D)  when the overall level of prices rises. 
E)  when all prices in the economy fall.

Question 13

Consider a nation in which the price index was 150 last year and this year it is 130. Which statement is correct?

Accepted Answer

A)  Inflation was 20% this year. 
B)  Deflation was 20% this year. 
C)  Housing prices must have fallen. 
D)  Inflation was 13.33% this year. 
E)  Deflation was 13.33% this year. 
A)  Inflation was 20% this year. 
B)  Deflation was 20% this year. 
C)  Housing prices must have fallen. 
D)  Inflation was 13.33% this year. 
E)  Deflation was 13.33% this year.

Question 14

Deflation is best described as:

Accepted Answer

A)  when all prices in the economy fall. 
B)  when the prices of some goods rise and prices of some goods fall, but more goods have price increases than decreases. 
C)  when the prices of some goods rise and prices of some goods fall, but fewer goods have price increases than decreases. 
D)  when the overall level of prices of goods falls. 
E)  when the overall level of prices of goods rises. 
A)  when all prices in the economy fall. 
B)  when the prices of some goods rise and prices of some goods fall, but more goods have price increases than decreases. 
C)  when the prices of some goods rise and prices of some goods fall, but fewer goods have price increases than decreases. 
D)  when the overall level of prices of goods falls. 
E)  when the overall level of prices of goods rises.

Question 15

Education typically composes about:

Accepted Answer

A)  3% of the CPI 
B)  5% of the CPI. 
C)  10% of the CPI. 
D)  15% of the CPI. 
E)  20% of the CPI. 
A)  3% of the CPI 
B)  5% of the CPI. 
C)  10% of the CPI. 
D)  15% of the CPI. 
E)  20% of the CPI.

Question 16

Refer to the following table to answer the next  questions:  
-As presented in the table, the rate of inflation (or deflation) from 2001-2002 was (rounded to two decimal places):

Accepted Answer

A)  7.00%. 
B)  105.00%. 
C)  112.00%. 
D)  6.67%. 
E)  6.25%. 
A)  7.00%. 
B)  105.00%. 
C)  112.00%. 
D)  6.67%. 
E)  6.25%.

Question 17

You know that the consumer price index (CPI) at the beginning of this year was 250 and the rate of inflation was 14%; this would mean:

Accepted Answer

A)  the price of cat food increased by exactly 14%. 
B)  the CPI at the beginning of last year was 215. 
C)  the price of dog food probably fell. 
D)  the CPI at the end of the year was 285. 
E)  the rate of inflation next year will be more than 14%. 
A)  the price of cat food increased by exactly 14%. 
B)  the CPI at the beginning of last year was 215. 
C)  the price of dog food probably fell. 
D)  the CPI at the end of the year was 285. 
E)  the rate of inflation next year will be more than 14%.

Question 18

According to the consumer price index (CPI), in a particular year, the price of gasoline rises in the United States by 22%; simultaneously, the price of all food items falls by 8%. Which statement is correct?

Accepted Answer

A)  If gasoline prices rise in more of the 38 geographical locations than those in which it stays the same or falls, the food price changes are irrelevant. 
B)  This means that the price of gasoline must have increased in more of the 38 geographical locations where the CPI is measured and food prices must have fallen in more of those 38 locations. 
C)  Based solely on the information given, we cannot conclude what happened to the CPI. 
D)  This means that the price of gasoline and food rose in every geographic location where the CPI is measured. 
E)  This means that the price of gasoline and food rose in every place where gasoline and food are sold in the United States during that year. 
A)  If gasoline prices rise in more of the 38 geographical locations than those in which it stays the same or falls, the food price changes are irrelevant. 
B)  This means that the price of gasoline must have increased in more of the 38 geographical locations where the CPI is measured and food prices must have fallen in more of those 38 locations. 
C)  Based solely on the information given, we cannot conclude what happened to the CPI. 
D)  This means that the price of gasoline and food rose in every geographic location where the CPI is measured. 
E)  This means that the price of gasoline and food rose in every place where gasoline and food are sold in the United States during that year.

Question 19

Refer to the following figure to answer the next  questions:  
-As presented in the figure, one could correctly state that during the period shown:

Accepted Answer

A)  the United States and the European Union generally experienced periods of both inflation and deflation. 
B)  generally, the United States experienced deflation, but the European Union experienced inflation. 
C)  generally, the European Union experienced more deflation than the United States did. 
D)  there was never a time when either the United States or the European Union experienced deflation. 
E)  there were brief periods of hyperinflation for both the United States and European Union in the 1970s and early 1980s. 
A)  the United States and the European Union generally experienced periods of both inflation and deflation. 
B)  generally, the United States experienced deflation, but the European Union experienced inflation. 
C)  generally, the European Union experienced more deflation than the United States did. 
D)  there was never a time when either the United States or the European Union experienced deflation. 
E)  there were brief periods of hyperinflation for both the United States and European Union in the 1970s and early 1980s.

Question 20

What is the underlying concept behind future price level uncertainty?

Accepted Answer

Firms enter into contracts and incur cos

What is the underlying concept behind the price confusion problem?

If the price of industrial plastic injection molding machines rose by 20% and the price of oranges fell by 20%, then:

Using the table below, compute the consumer price index (CPI) in 2007 using 2006 as the base year. Show all your work.

Inflation can create uncertainty by making:

Typically the consumer price index (CPI) is calculated by:

Oranges become more expensive in 2008 at Ukrop's in Charlottesville, Virginia. This means:

Assume tuition and fees at North Carolina State University cost $4,259 in 2004 and $7,787 in 2012. If the price index was 184 in 2004 and 226 in 2012, then we could say:

Refer to the following figure when answering the next questions: -Referring to the figure, we can observe that:

Deflation:

Consider a nation in which the price index last year was 130 and this year it is 150. Which statement is correct?

Arguably, the increases in housing prices in 2005-2006:

Inflation occurs:

Consider a nation in which the price index was 150 last year and this year it is 130. Which statement is correct?

Deflation is best described as:

Education typically composes about:

Refer to the following table to answer the next questions: -As presented in the table, the rate of inflation (or deflation) from 2001-2002 was (rounded to two decimal places):

You know that the consumer price index (CPI) at the beginning of this year was 250 and the rate of inflation was 14%; this would mean:

According to the consumer price index (CPI), in a particular year, the price of gasoline rises in the United States by 22%; simultaneously, the price of all food items falls by 8%. Which statement is correct?

Refer to the following figure to answer the next questions: -As presented in the figure, one could correctly state that during the period shown:

What is the underlying concept behind future price level uncertainty?

The Five Foundations of Economics

Model Building and Gains From Trade

The Market at Work: Supply and Demand

Price Controls

The Efficiency of Markets and the Costs of Taxation

Introduction to Macroeconomics and Gross Domestic Product

Unemployment

Savings, Interest Rates, and the Market for Loanable Funds

Financial Markets and Securities

Economic Growth and the Wealth of Nations

Growth Theory

The Aggregate Demandaggregate Supply Model

The Great Recession, the Great Depression, and Great Macroeconomic Debates

Federal Budgets: the Tools of Fiscal Policy

Fiscal Policy

Money and the Federal Reserve

Monetary Policy

International Trade

International Finance

Filters

Exam 8: The Price Level and Inflation

What is the underlying concept behind the price confusion problem?

If the price of industrial plastic injection molding machines rose by 20% and the price of oranges fell by 20%, then:

Using the table below, compute the consumer price index (CPI) in 2007 using 2006 as the base year. Show all your work.

Inflation can create uncertainty by making:

Typically the consumer price index (CPI) is calculated by:

Oranges become more expensive in 2008 at Ukrop's in Charlottesville, Virginia. This means:

Assume tuition and fees at North Carolina State University cost $4,259 in 2004 and $7,787 in 2012. If the price index was 184 in 2004 and 226 in 2012, then we could say:

Refer to the following figure when answering the next questions: -Referring to the figure, we can observe that:

Deflation:

Consider a nation in which the price index last year was 130 and this year it is 150. Which statement is correct?

Arguably, the increases in housing prices in 2005-2006:

Inflation occurs:

Consider a nation in which the price index was 150 last year and this year it is 130. Which statement is correct?

Deflation is best described as:

Education typically composes about:

Refer to the following table to answer the next questions: -As presented in the table, the rate of inflation (or deflation) from 2001-2002 was (rounded to two decimal places):

You know that the consumer price index (CPI) at the beginning of this year was 250 and the rate of inflation was 14%; this would mean:

According to the consumer price index (CPI), in a particular year, the price of gasoline rises in the United States by 22%; simultaneously, the price of all food items falls by 8%. Which statement is correct?

Refer to the following figure to answer the next questions: -As presented in the figure, one could correctly state that during the period shown:

What is the underlying concept behind future price level uncertainty?

The Five Foundations of Economics

Model Building and Gains From Trade

The Market at Work: Supply and Demand

Price Controls

The Efficiency of Markets and the Costs of Taxation

Introduction to Macroeconomics and Gross Domestic Product

Unemployment

Savings, Interest Rates, and the Market for Loanable Funds

Financial Markets and Securities

Economic Growth and the Wealth of Nations

Growth Theory

The Aggregate Demandaggregate Supply Model

The Great Recession, the Great Depression, and Great Macroeconomic Debates

Federal Budgets: the Tools of Fiscal Policy

Fiscal Policy

Money and the Federal Reserve

Monetary Policy

International Trade

International Finance

Filters