Question 1

You get a pay raise and feel richer even though your raise did not keep up with inflation; this is best described as:

Accepted Answer

A)  menu costs. 
B)  price confusion. 
C)  future price uncertainty. 
D)  money illusion. 
E)  nominal income uncertainty. 
A)  menu costs. 
B)  price confusion. 
C)  future price uncertainty. 
D)  money illusion. 
E)  nominal income uncertainty.

Question 2

If your nominal wage rises but you think that it automatically means your real wage rose, then:

Accepted Answer

A)  you are suffering from money illusion. 
B)  you are experiencing the substitution effect. 
C)  you are suffering from the heterogeneity illusion effect. 
D)  you are experiencing the income effect. 
E)  you are suffering from the price confusion problem. 
A)  you are suffering from money illusion. 
B)  you are experiencing the substitution effect. 
C)  you are suffering from the heterogeneity illusion effect. 
D)  you are experiencing the income effect. 
E)  you are suffering from the price confusion problem.

Question 3

The chained consumer price index (CPI) tends to more accurately reflect prices by updating the consumer basket of goods:

Accepted Answer

A)  every time any price in the typical consumer basket changes. 
B)  daily. 
C)  weekly. 
D)  monthly. 
E)  annually. 
A)  every time any price in the typical consumer basket changes. 
B)  daily. 
C)  weekly. 
D)  monthly. 
E)  annually.

Question 4

In Bovania, milk constitutes 56% of the typical basket of goods for a typical consumer. Let's say the price of milk rises by 4% and the prices of all other goods fall by 10%. Based on the information given, we can definitely say:

Accepted Answer

A)  the consumer price index (CPI) in Bovania is greater than in the previous year. 
B)  the CPI in Bovania is less than in the previous year. 
C)  if consumers get a 4% pay raise, they are worse off in terms of their real income compared to inflation as measured by the Bovanian CPI. 
D)  because milk is a necessity, consumers are automatically worse off no matter what pay increase they may have received. 
E)  shoe-leather costs have decreased. 
A)  the consumer price index (CPI) in Bovania is greater than in the previous year. 
B)  the CPI in Bovania is less than in the previous year. 
C)  if consumers get a 4% pay raise, they are worse off in terms of their real income compared to inflation as measured by the Bovanian CPI. 
D)  because milk is a necessity, consumers are automatically worse off no matter what pay increase they may have received. 
E)  shoe-leather costs have decreased.

Question 5

Michael Chang buys only tennis rackets during a particular year. During the year in question, the price of all goods rises by 10% on average, but the price of tennis rackets remains the same. Which statement is correct?

Accepted Answer

A)  Michael benefits from inflation. 
B)  Michael does not experience inflation because he only buys tennis racquets. 
C)  No matter what Michael buys, he experiences inflation. 
D)  Michael does not benefit from inflation. 
E)  We can't conclude anything from the information given. 
A)  Michael benefits from inflation. 
B)  Michael does not experience inflation because he only buys tennis racquets. 
C)  No matter what Michael buys, he experiences inflation. 
D)  Michael does not benefit from inflation. 
E)  We can't conclude anything from the information given.

Question 6

Describe menu costs.

Accepted Answer

When inflation occurs, producers have to

Question 7

Refer to the following table to answer the next  questions:  
-As presented in the table, the rate of inflation from 1999-2000 was (rounded to two decimal places):

Accepted Answer

A)  7.00%. 
B)  80.00%. 
C)  87.00%. 
D)  8.75%. 
E)  10.00%. 
A)  7.00%. 
B)  80.00%. 
C)  87.00%. 
D)  8.75%. 
E)  10.00%.

Question 8

Deflation is occurring in a nation; the implication(s) of this is/are:

Accepted Answer

A)  both real and nominal wages are rising. 
B)  both real and nominal wages are falling. 
C)  if you have no job and have no income, you are better off because things are cheaper. 
D)  holding nominal wages constant, the real wage would rise. 
E)  holding nominal wages constant, the real wage would fall. 
A)  both real and nominal wages are rising. 
B)  both real and nominal wages are falling. 
C)  if you have no job and have no income, you are better off because things are cheaper. 
D)  holding nominal wages constant, the real wage would rise. 
E)  holding nominal wages constant, the real wage would fall.

Question 9

Assume tuition at Houston Community College cost $588 (per semester) in 2004 and $813 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 menu costs 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 menu costs due to inflation.

Question 10

The price of a McDonald's hamburger in 1955 was $0.15 when the price index was 27; if in 2011, it was $0.89 when the price index was 220, then the inflation-adjusted price of a McDonald's hamburger in 2011 was:

Accepted Answer

A)  almost exactly the same (within 10%). 
B)  much higher (twice or more) than 2011's actual price. 
C)  much lower (half or less) than 2011's actual price. 
D)  a bit higher than 2011's actual price (1-1.99 times as much). 
E)  a bit lower than 2011's actual price (0.51-0.90 times as much). 
A)  almost exactly the same (within 10%). 
B)  much higher (twice or more) than 2011's actual price. 
C)  much lower (half or less) than 2011's actual price. 
D)  a bit higher than 2011's actual price (1-1.99 times as much). 
E)  a bit lower than 2011's actual price (0.51-0.90 times as much).

Question 11

What is the difference between the consumer price index (CPI) and the gross domestic product (GDP) deflator?

Accepted Answer

A)  Under normal circumstances, the CPI is the better measure of the overall price level. 
B)  If inflation is high, the CPI is the better measure of the overall price level; if inflation is low or deflation is occurring, the GDP deflator is the better measure. 
C)  The GDP deflator is used only during periods of deflation; the rest of the time we use the CPI to measure the overall price level. 
D)  If we want to examine how price changes affect the overall economy, the GDP deflator is the better measure. 
E)  The CPI must be equal to the GDP deflator because of the "equation of consumer homogeneity." 
A)  Under normal circumstances, the CPI is the better measure of the overall price level. 
B)  If inflation is high, the CPI is the better measure of the overall price level; if inflation is low or deflation is occurring, the GDP deflator is the better measure. 
C)  The GDP deflator is used only during periods of deflation; the rest of the time we use the CPI to measure the overall price level. 
D)  If we want to examine how price changes affect the overall economy, the GDP deflator is the better measure. 
E)  The CPI must be equal to the GDP deflator because of the "equation of consumer homogeneity."

Question 12

In terms of inflation, the period from the mid-1980s until today in the United States is called the "Great Moderation." This refers to the fact that:

Accepted Answer

A)  the hyperinflation rates of 100% or more experienced during the 1960s, 1970s, and 1980s have been replaced by moderate rates of inflation averaging about 12%. 
B)  the inflation of the 1960s, 1970s, and early 1980s has been replaced by deflation. 
C)  the deflation of the 1960s, 1970s, and early 1980s has been replaced by moderate inflation (under 10%). 
D)  the double-digit inflation of the 1970s and 1980s has been replaced by well-controlled inflation of less than 10%. 
E)  inflation now fluctuates between 0% and 20%, whereas in the 1970s and 1980s, it fluctuated more wildly and at higher rates. 
A)  the hyperinflation rates of 100% or more experienced during the 1960s, 1970s, and 1980s have been replaced by moderate rates of inflation averaging about 12%. 
B)  the inflation of the 1960s, 1970s, and early 1980s has been replaced by deflation. 
C)  the deflation of the 1960s, 1970s, and early 1980s has been replaced by moderate inflation (under 10%). 
D)  the double-digit inflation of the 1970s and 1980s has been replaced by well-controlled inflation of less than 10%. 
E)  inflation now fluctuates between 0% and 20%, whereas in the 1970s and 1980s, it fluctuated more wildly and at higher rates.

Question 13

You are offered two jobs, one in Chicago paying $67,000 and one in Philadelphia paying $79,000. The price index in Chicago is 110.8, and in Philadelphia it is 126.5. If real wages are the only consideration, then:

Accepted Answer

A)  you would be indifferent between the two jobs because the real wages would be about the same (within 2%). 
B)  you would definitely take the job in Chicago because the real wage is higher there. 
C)  you would definitely take the job in Philadelphia because the real wage is higher there. 
D)  you would suffer from money illusion and be conflicted. 
E)  because there is a direct correlation between the real wage and the nominal wage, the job in Philadelphia is definitely the one to take. 
A)  you would be indifferent between the two jobs because the real wages would be about the same (within 2%). 
B)  you would definitely take the job in Chicago because the real wage is higher there. 
C)  you would definitely take the job in Philadelphia because the real wage is higher there. 
D)  you would suffer from money illusion and be conflicted. 
E)  because there is a direct correlation between the real wage and the nominal wage, the job in Philadelphia is definitely the one to take.

Question 14

If real income increases, then:

Accepted Answer

A)  nominal income increases. 
B)  nominal income increases if the price index falls. 
C)  nominal income rises faster than prices. 
D)  nominal income remains constant but the majority of goods in the consumer price index (CPI) get cheaper. 
E)  nominal income decreases. 
A)  nominal income increases. 
B)  nominal income increases if the price index falls. 
C)  nominal income rises faster than prices. 
D)  nominal income remains constant but the majority of goods in the consumer price index (CPI) get cheaper. 
E)  nominal income decreases.

Question 15

If nominal income increases, then:

Accepted Answer

A)  real income increases. 
B)  real income increases if the price index falls. 
C)  real income increases if the percent increase in price index rises by more the percent change in nominal income. 
D)  real income increases if you buy only the goods included in the consumer price index (CPI) and the majority of those goods get cheaper. 
E)  real income decreases. 
A)  real income increases. 
B)  real income increases if the price index falls. 
C)  real income increases if the percent increase in price index rises by more the percent change in nominal income. 
D)  real income increases if you buy only the goods included in the consumer price index (CPI) and the majority of those goods get cheaper. 
E)  real income decreases.

Question 16

How do you convert a price of a good from an earlier time into today's price?

Accepted Answer

A)  Take the earlier price and divide by today's price, then multiply by the ratio of the consumer price index (CPI) today to that of the CPI in the old year. 
B)  Take the earlier price and multiply by the ratio of the earlier gross domestic product (GDP) deflator to today's CPI. 
C)  Take today's price and divide by the earlier price in terms of the GDP deflator. 
D)  Take the earlier price and multiply by the ratio of today's CPI to the earlier CPI. 
E)  Take the earlier price and multiply by the ratio of the earlier CPI to the current CPI. 
A)  Take the earlier price and divide by today's price, then multiply by the ratio of the consumer price index (CPI) today to that of the CPI in the old year. 
B)  Take the earlier price and multiply by the ratio of the earlier gross domestic product (GDP) deflator to today's CPI. 
C)  Take today's price and divide by the earlier price in terms of the GDP deflator. 
D)  Take the earlier price and multiply by the ratio of today's CPI to the earlier CPI. 
E)  Take the earlier price and multiply by the ratio of the earlier CPI to the current CPI.

Question 17

Inflation creates uncertainty because:

Accepted Answer

A)  nominal values of prices and wages are unknown. 
B)  it rapidly increases output. 
C)  real interest rates, prices, and wages are unknown. 
D)  borrowing continues at a rapid pace, creating a "false boom." 
E)  although price confusion problems are eliminated, the shoe-leather costs are exacerbated. 
A)  nominal values of prices and wages are unknown. 
B)  it rapidly increases output. 
C)  real interest rates, prices, and wages are unknown. 
D)  borrowing continues at a rapid pace, creating a "false boom." 
E)  although price confusion problems are eliminated, the shoe-leather costs are exacerbated.

Question 18

Refer to the following figure to answer the next  questions:  
-Based on the figure, one could correctly state that:

Accepted Answer

A)  although U.S. inflation was generally higher in the 1970s and 1980s, that situation was reversed in the later years for the European Union. 
B)  inflation in both the United States and the European Union was higher in the 1990s than it was in the 1970s and 1980s. 
C)  deflation was a problem in the United States and the European Union in the 1990s, but inflation was a problem for both in the 1970s and 1980s. 
D)  U.S. and E.U. inflation both tended to be higher in the 1970s and 1980s than in the 1990s. 
E)  typically, while the European Union had inflation problems, the United States had deflation problems. 
A)  although U.S. inflation was generally higher in the 1970s and 1980s, that situation was reversed in the later years for the European Union. 
B)  inflation in both the United States and the European Union was higher in the 1990s than it was in the 1970s and 1980s. 
C)  deflation was a problem in the United States and the European Union in the 1990s, but inflation was a problem for both in the 1970s and 1980s. 
D)  U.S. and E.U. inflation both tended to be higher in the 1970s and 1980s than in the 1990s. 
E)  typically, while the European Union had inflation problems, the United States had deflation problems.

Question 19

Medical care typically composes ____ of the typical consumer price index (CPI).

Accepted Answer

A)  5% 
B)  7% 
C)  10% 
D)  12% 
E)  15% 
A)  5% 
B)  7% 
C)  10% 
D)  12% 
E)  15%

Question 20

Define inflation. Be specific. Be sure to address whether the prices of all goods are increasing, what is included in determining the basis for changes in the price level, and how the price level is measured.

Accepted Answer

Inflation is an increase in the overall

You get a pay raise and feel richer even though your raise did not keep up with inflation; this is best described as:

If your nominal wage rises but you think that it automatically means your real wage rose, then:

The chained consumer price index (CPI) tends to more accurately reflect prices by updating the consumer basket of goods:

In Bovania, milk constitutes 56% of the typical basket of goods for a typical consumer. Let's say the price of milk rises by 4% and the prices of all other goods fall by 10%. Based on the information given, we can definitely say:

Michael Chang buys only tennis rackets during a particular year. During the year in question, the price of all goods rises by 10% on average, but the price of tennis rackets remains the same. Which statement is correct?

Describe menu costs.

Refer to the following table to answer the next questions: -As presented in the table, the rate of inflation from 1999-2000 was (rounded to two decimal places):

Deflation is occurring in a nation; the implication(s) of this is/are:

Assume tuition at Houston Community College cost $588 (per semester) in 2004 and $813 in 2012. If the price index was 184 in 2004 and 226 in 2012, then we could say:

The price of a McDonald's hamburger in 1955 was $0.15 when the price index was 27; if in 2011, it was $0.89 when the price index was 220, then the inflation-adjusted price of a McDonald's hamburger in 2011 was:

What is the difference between the consumer price index (CPI) and the gross domestic product (GDP) deflator?

In terms of inflation, the period from the mid-1980s until today in the United States is called the "Great Moderation." This refers to the fact that:

You are offered two jobs, one in Chicago paying $67,000 and one in Philadelphia paying $79,000. The price index in Chicago is 110.8, and in Philadelphia it is 126.5. If real wages are the only consideration, then:

If real income increases, then:

If nominal income increases, then:

How do you convert a price of a good from an earlier time into today's price?

Inflation creates uncertainty because:

Refer to the following figure to answer the next questions: -Based on the figure, one could correctly state that:

Medical care typically composes ____ of the typical consumer price index (CPI).

Define inflation. Be specific. Be sure to address whether the prices of all goods are increasing, what is included in determining the basis for changes in the price level, and how the price level is measured.

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

You get a pay raise and feel richer even though your raise did not keep up with inflation; this is best described as:

If your nominal wage rises but you think that it automatically means your real wage rose, then:

The chained consumer price index (CPI) tends to more accurately reflect prices by updating the consumer basket of goods:

In Bovania, milk constitutes 56% of the typical basket of goods for a typical consumer. Let's say the price of milk rises by 4% and the prices of all other goods fall by 10%. Based on the information given, we can definitely say:

Michael Chang buys only tennis rackets during a particular year. During the year in question, the price of all goods rises by 10% on average, but the price of tennis rackets remains the same. Which statement is correct?

Describe menu costs.

Refer to the following table to answer the next questions: -As presented in the table, the rate of inflation from 1999-2000 was (rounded to two decimal places):

Deflation is occurring in a nation; the implication(s) of this is/are:

Assume tuition at Houston Community College cost $588 (per semester) in 2004 and $813 in 2012. If the price index was 184 in 2004 and 226 in 2012, then we could say:

The price of a McDonald's hamburger in 1955 was $0.15 when the price index was 27; if in 2011, it was $0.89 when the price index was 220, then the inflation-adjusted price of a McDonald's hamburger in 2011 was:

What is the difference between the consumer price index (CPI) and the gross domestic product (GDP) deflator?

In terms of inflation, the period from the mid-1980s until today in the United States is called the "Great Moderation." This refers to the fact that:

You are offered two jobs, one in Chicago paying $67,000 and one in Philadelphia paying $79,000. The price index in Chicago is 110.8, and in Philadelphia it is 126.5. If real wages are the only consideration, then:

If real income increases, then:

If nominal income increases, then:

How do you convert a price of a good from an earlier time into today's price?

Inflation creates uncertainty because:

Refer to the following figure to answer the next questions: -Based on the figure, one could correctly state that:

Medical care typically composes ____ of the typical consumer price index (CPI).

Define inflation. Be specific. Be sure to address whether the prices of all goods are increasing, what is included in determining the basis for changes in the price level, and how the price level is measured.

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