Question 1

Tofu becomes more expensive in 2008 at Safeway/Vons in Laguna Nigel, California. This means:

Accepted Answer

A)  the consumer price index (CPI) will rise in 2008 if, and only if, Laguna Nigel is one of the considered 38 geographic locations and tofu is one of the 8,000 goods included in the CPI. 
B)  the CPI will almost certainly rise in 2008, even if Laguna Nigel is not included in the index, as long as tofu is included and becomes more expensive on average at the other locations. 
C)  the CPI will likely fall (in 2008) if the average weighted price of tofu increases in the United States and the price of tofu at Safeway/Vons makes almost no difference in the CPI. 
D)  the CPI might rise or fall (in 2008) and the price of tofu at Safeway/Vons could make a very small difference in the CPI if tofu at Safeway/Vons is included in the index. But because tofu is a relatively large portion of the entire CPI, it is most likely the CPI will rise. 
E)  tofu, even if included in the CPI in 2008, would make a small difference on the average weighted price of food and beverages. Food and beverages only constitute a small portion of the CPI, and hence, this would be unlikely to affect the overall CPI by any significant amount. 
A)  the consumer price index (CPI) will rise in 2008 if, and only if, Laguna Nigel is one of the considered 38 geographic locations and tofu is one of the 8,000 goods included in the CPI. 
B)  the CPI will almost certainly rise in 2008, even if Laguna Nigel is not included in the index, as long as tofu is included and becomes more expensive on average at the other locations. 
C)  the CPI will likely fall (in 2008) if the average weighted price of tofu increases in the United States and the price of tofu at Safeway/Vons makes almost no difference in the CPI. 
D)  the CPI might rise or fall (in 2008) and the price of tofu at Safeway/Vons could make a very small difference in the CPI if tofu at Safeway/Vons is included in the index. But because tofu is a relatively large portion of the entire CPI, it is most likely the CPI will rise. 
E)  tofu, even if included in the CPI in 2008, would make a small difference on the average weighted price of food and beverages. Food and beverages only constitute a small portion of the CPI, and hence, this would be unlikely to affect the overall CPI by any significant amount.

Question 2

The chained consumer price index (CPI) is a better measure of prices than the traditional CPI:

Accepted Answer

A)  because it contains producer prices, not just consumer prices. 
B)  because it adjusts for price changes less frequently but across more goods. 
C)  because it adjusts for price changes more often, especially when new goods are introduced, which is important because new products' prices tend to fall soon after introduction. 
D)  because the chained index is called "chained" because it includes industrial goods that are not included in the traditional CPI. 
E)  because while omitting producer prices, it includes substitution between goods as relative prices change. 
A)  because it contains producer prices, not just consumer prices. 
B)  because it adjusts for price changes less frequently but across more goods. 
C)  because it adjusts for price changes more often, especially when new goods are introduced, which is important because new products' prices tend to fall soon after introduction. 
D)  because the chained index is called "chained" because it includes industrial goods that are not included in the traditional CPI. 
E)  because while omitting producer prices, it includes substitution between goods as relative prices change.

Question 3

According to the textbook, the top-grossing movie of all time (adjusted for inflation) is:

Accepted Answer

A)  Avatar. 
B)  Blade Runner. 
C)  Every Which Way but Loose. 
D)  Star Wars. 
E)  Gone with the Wind. 
A)  Avatar. 
B)  Blade Runner. 
C)  Every Which Way but Loose. 
D)  Star Wars. 
E)  Gone with the Wind.

Question 4

The value of the consumer price index (CPI) is best described as:

Accepted Answer

A)  the current year prices to base year prices, holding the market basket content constant. 
B)  the current year prices to base year prices, including changes in the content of the market basket. 
C)  the base year prices to current year prices, holding the market basket content constant. 
D)  the base year prices to current year prices, including changes in the content of the market basket. 
E)  the current year quantity to base year quantity, including changes in the prices of the market basket. 
A)  the current year prices to base year prices, holding the market basket content constant. 
B)  the current year prices to base year prices, including changes in the content of the market basket. 
C)  the base year prices to current year prices, holding the market basket content constant. 
D)  the base year prices to current year prices, including changes in the content of the market basket. 
E)  the current year quantity to base year quantity, including changes in the prices of the market basket.

Question 5

The signing of long-term wage and price agreements and the relationship to inflation most likely raises the issue of:

Accepted Answer

A)  price confusion problems. 
B)  future price uncertainty. 
C)  money illusion. 
D)  consumer price index (CPI) heteroskedasticity. 
E)  deflationary tendencies. 
A)  price confusion problems. 
B)  future price uncertainty. 
C)  money illusion. 
D)  consumer price index (CPI) heteroskedasticity. 
E)  deflationary tendencies.

Question 6

If your real wage rose but your nominal wage fell, this would imply that:

Accepted Answer

A)  inflation is positive but less than the rate of increase in your wage. 
B)  deflation has occurred. 
C)  your boss took some of your wages illegally. 
D)  the overall price level has fallen more than your nominal wage. 
E)  housing prices have fallen and because you own a house, it reduces the value of your real wage. 
A)  inflation is positive but less than the rate of increase in your wage. 
B)  deflation has occurred. 
C)  your boss took some of your wages illegally. 
D)  the overall price level has fallen more than your nominal wage. 
E)  housing prices have fallen and because you own a house, it reduces the value of your real wage.

Question 7

The chained consumer price index (CPI) tends to be:

Accepted Answer

A)  a better measure of prices than the traditional CPI, no matter what the circumstances. 
B)  a better measure of prices than the traditional CPI, but only if inflation is relatively high. 
C)  a better measure of prices than the traditional CPI, but only if inflation is relatively low. 
D)  equally as good as the traditional CPI, under all conditions. 
E)  a poor measure of prices, but better than the gross domestic product (GDP) deflator. 
A)  a better measure of prices than the traditional CPI, no matter what the circumstances. 
B)  a better measure of prices than the traditional CPI, but only if inflation is relatively high. 
C)  a better measure of prices than the traditional CPI, but only if inflation is relatively low. 
D)  equally as good as the traditional CPI, under all conditions. 
E)  a poor measure of prices, but better than the gross domestic product (GDP) deflator.

Question 8

Typically if real wages fall, the quantity demanded of labor rises. If workers agree to 3% wage increases for a four-year period and inflation is more than 3%, then, based on this information alone:

Accepted Answer

A)  workers will have higher real wages because they get paid more. 
B)  the quantity demanded of labor will increase, because real wages fell. 
C)  workers must experience money illusion. 
D)  the quantity demanded of labor will fall. 
E)  the demand, but not the quantity demanded, for labor will fall. 
A)  workers will have higher real wages because they get paid more. 
B)  the quantity demanded of labor will increase, because real wages fell. 
C)  workers must experience money illusion. 
D)  the quantity demanded of labor will fall. 
E)  the demand, but not the quantity demanded, for labor will fall.

Question 9

Donna Newton made $0.30 per hour in 1946 at a small restaurant in Clearfield, Pennsylvania. If the consumer price index (CPI) was 18.3 in 1946 and 202.4 in 2011, then Donna's inflation-adjusted wage would be:

Accepted Answer

A)  $7.25 by U.S. law. 
B)  $0.30. 
C)  $2.87. 
D)  $0.61. 
E)  $3.32. 
A)  $7.25 by U.S. law. 
B)  $0.30. 
C)  $2.87. 
D)  $0.61. 
E)  $3.32.

Question 10

According to the textbook, the fully completed house that one could buy from the Sears catalog in 1924 would be:

Accepted Answer

A)  exorbitantly expensive by today's standards, adjusting for inflation. 
B)  about the typical price of a house today, adjusting for inflation. 
C)  of abnormally low quality and hence commanding a much lower price, even when adjusting for inflation. 
D)  quite a good deal, even when adjusting for inflation. 
E)  affordable to even the poorest Americans and would help to provide "sustainable growth." 
A)  exorbitantly expensive by today's standards, adjusting for inflation. 
B)  about the typical price of a house today, adjusting for inflation. 
C)  of abnormally low quality and hence commanding a much lower price, even when adjusting for inflation. 
D)  quite a good deal, even when adjusting for inflation. 
E)  affordable to even the poorest Americans and would help to provide "sustainable growth."

Question 11

You have to pay costs for your business now but you also have to enter into long-term contracts to repay loans in the future. If inflation occurs, the best term for the problem that occurs in this case is:

Accepted Answer

A)  menu costs. 
B)  price confusion. 
C)  future price uncertainty. 
D)  deflationary price pressures. 
E)  present value/future value uncertainty. 
A)  menu costs. 
B)  price confusion. 
C)  future price uncertainty. 
D)  deflationary price pressures. 
E)  present value/future value uncertainty.

Question 12

Your entertainment price index (EPI) was computed based on three goods: movie tickets, popcorn, and limeade. If you change the quantity of these goods from this year to next year and the prices of two of the three goods increase while the other price falls, then:

Accepted Answer

A)  your EPI would definitely fall during the year in question if, and only if, you buy less of all the goods in question. 
B)  your EPI would definitely rise during the year in question because two of the three goods became more expensive. 
C)  your EPI might rise or fall, contingent on both the quantity of the goods that you bought and the prices of these goods. 
D)  your EPI might rise or fall, contingent only on the quantity of the goods that you bought and regardless of the prices of these goods. 
E)  your EPI might rise or fall, contingent only on the percentage of the market basket that these goods constituted and the percentage that each good occupied within the basket, regardless of the quantity change from year to year. 
A)  your EPI would definitely fall during the year in question if, and only if, you buy less of all the goods in question. 
B)  your EPI would definitely rise during the year in question because two of the three goods became more expensive. 
C)  your EPI might rise or fall, contingent on both the quantity of the goods that you bought and the prices of these goods. 
D)  your EPI might rise or fall, contingent only on the quantity of the goods that you bought and regardless of the prices of these goods. 
E)  your EPI might rise or fall, contingent only on the percentage of the market basket that these goods constituted and the percentage that each good occupied within the basket, regardless of the quantity change from year to year.

Question 13

You own a store and have not raised prices recently-and now your store has more customers. Which statement is correct?

Accepted Answer

A)  This can be troublesome because you face a "menu costs" problem because you must not have increased prices fast enough. 
B)  This can be troublesome because you face a price confusion problem: You don't know if the extra business means that you should open another store, or if the crowds are a result of inflation, which has caused all consumers to buy at a faster rate. 
C)  This can be troublesome because you face a future price uncertainty problem because you don't know how much to increase your prices now or in the future. 
D)  It can't be troublesome; it can only be good. 
E)  This can be troublesome because too many customers generate deflationary pressures for all businesses. 
A)  This can be troublesome because you face a "menu costs" problem because you must not have increased prices fast enough. 
B)  This can be troublesome because you face a price confusion problem: You don't know if the extra business means that you should open another store, or if the crowds are a result of inflation, which has caused all consumers to buy at a faster rate. 
C)  This can be troublesome because you face a future price uncertainty problem because you don't know how much to increase your prices now or in the future. 
D)  It can't be troublesome; it can only be good. 
E)  This can be troublesome because too many customers generate deflationary pressures for all businesses.

Question 14

Inflation 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)  almost none, because most wages increase at about the same rate as inflation. 
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)  almost none, because most wages increase at about the same rate as inflation. 
D)  holding nominal wages constant, the real wage would rise. 
E)  holding nominal wages constant, the real wage would fall.

Question 15

Assume the price of salt increased from $0.30 in 1985 to $0.50 in 1995. If we calculate the average rate of price increase for salt over this period, we could accurately say:

Accepted Answer

A)  the price of salt increased at about a 40% rate per year during this period. 
B)  the price of salt increased at about a 20% rate per year during this period. 
C)  the price of salt increased by about 20% total during this period. 
D)  the price of salt increased at about a 5% rate per year during this period. 
E)  the real price of salt definitely increased during the period. 
A)  the price of salt increased at about a 40% rate per year during this period. 
B)  the price of salt increased at about a 20% rate per year during this period. 
C)  the price of salt increased by about 20% total during this period. 
D)  the price of salt increased at about a 5% rate per year during this period. 
E)  the real price of salt definitely increased during the period.

Question 16

Refer to the following table to answer the next  questions:  
-As presented in the table, the approximate rate of inflation (or deflation) from 2000-2001 was (rounded to the nearest percent):

Accepted Answer

A)  7%. 
B)  105%. 
C)  87%. 
D)  21%. 
E)  17%. 
A)  7%. 
B)  105%. 
C)  87%. 
D)  21%. 
E)  17%.

Question 17

Arguably there are three reasons why the consumer price index (CPI) overstates inflation. List the reasons and explain each one.

Accepted Answer

Substitution: Consumers do not buy the s

Question 18

Inflation in Zimbabwe in 2008:

Accepted Answer

A)  was very low. 
B)  did not exist; during 2008 Zimbabwe had deflation. 
C)  was about the same as its neighbors, somewhere around 20%. 
D)  was very high at the beginning of the year but fell when Robert Mugabe agreed to share power with Morgan Tsvangarai. 
E)  reached the rate of 80 billion percent per month. 
A)  was very low. 
B)  did not exist; during 2008 Zimbabwe had deflation. 
C)  was about the same as its neighbors, somewhere around 20%. 
D)  was very high at the beginning of the year but fell when Robert Mugabe agreed to share power with Morgan Tsvangarai. 
E)  reached the rate of 80 billion percent per month.

Question 19

If 51% of all goods in the consumer price index (CPI) became more expensive and 49% became cheaper:

Accepted Answer

A)  inflation would certainly occur. 
B)  deflation would most likely occur. 
C)  inflation or deflation could occur, depending on the weight of these goods in the basket of goods and the actual percent changes. 
D)  deflation would certainly occur if the price of housing was one of the goods that fell. 
E)  inflation would occur if the goods whose prices increased did so by the same percentage as the goods whose prices decreased. 
A)  inflation would certainly occur. 
B)  deflation would most likely occur. 
C)  inflation or deflation could occur, depending on the weight of these goods in the basket of goods and the actual percent changes. 
D)  deflation would certainly occur if the price of housing was one of the goods that fell. 
E)  inflation would occur if the goods whose prices increased did so by the same percentage as the goods whose prices decreased.

Question 20

In Country Z, the prices of goods are measured on an annual basis on the last day of the year. In Country Y, the prices of goods are measured on a weekly basis every Wednesday. Comparing the two countries based on this information:

Accepted Answer

A)  Country Y more accurately combats the upward bias of its price index by using a chained index. 
B)  Country Z more accurately combats the upward bias of its price index by using a chained index. 
C)  Country Z will experience hyperinflation. 
D)  Country Y will experience hyperinflation. 
E)  Neither country has a very good price index; price indices must be measured daily. 
A)  Country Y more accurately combats the upward bias of its price index by using a chained index. 
B)  Country Z more accurately combats the upward bias of its price index by using a chained index. 
C)  Country Z will experience hyperinflation. 
D)  Country Y will experience hyperinflation. 
E)  Neither country has a very good price index; price indices must be measured daily.

Tofu becomes more expensive in 2008 at Safeway/Vons in Laguna Nigel, California. This means:

The chained consumer price index (CPI) is a better measure of prices than the traditional CPI:

According to the textbook, the top-grossing movie of all time (adjusted for inflation) is:

The value of the consumer price index (CPI) is best described as:

The signing of long-term wage and price agreements and the relationship to inflation most likely raises the issue of:

If your real wage rose but your nominal wage fell, this would imply that:

The chained consumer price index (CPI) tends to be:

Typically if real wages fall, the quantity demanded of labor rises. If workers agree to 3% wage increases for a four-year period and inflation is more than 3%, then, based on this information alone:

Donna Newton made $0.30 per hour in 1946 at a small restaurant in Clearfield, Pennsylvania. If the consumer price index (CPI) was 18.3 in 1946 and 202.4 in 2011, then Donna's inflation-adjusted wage would be:

According to the textbook, the fully completed house that one could buy from the Sears catalog in 1924 would be:

You have to pay costs for your business now but you also have to enter into long-term contracts to repay loans in the future. If inflation occurs, the best term for the problem that occurs in this case is:

Your entertainment price index (EPI) was computed based on three goods: movie tickets, popcorn, and limeade. If you change the quantity of these goods from this year to next year and the prices of two of the three goods increase while the other price falls, then:

You own a store and have not raised prices recently-and now your store has more customers. Which statement is correct?

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

Assume the price of salt increased from $0.30 in 1985 to $0.50 in 1995. If we calculate the average rate of price increase for salt over this period, we could accurately say:

Refer to the following table to answer the next questions: -As presented in the table, the approximate rate of inflation (or deflation) from 2000-2001 was (rounded to the nearest percent):

Arguably there are three reasons why the consumer price index (CPI) overstates inflation. List the reasons and explain each one.

Inflation in Zimbabwe in 2008:

If 51% of all goods in the consumer price index (CPI) became more expensive and 49% became cheaper:

In Country Z, the prices of goods are measured on an annual basis on the last day of the year. In Country Y, the prices of goods are measured on a weekly basis every Wednesday. Comparing the two countries based on this information:

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

Tofu becomes more expensive in 2008 at Safeway/Vons in Laguna Nigel, California. This means:

The chained consumer price index (CPI) is a better measure of prices than the traditional CPI:

According to the textbook, the top-grossing movie of all time (adjusted for inflation) is:

The value of the consumer price index (CPI) is best described as:

The signing of long-term wage and price agreements and the relationship to inflation most likely raises the issue of:

If your real wage rose but your nominal wage fell, this would imply that:

The chained consumer price index (CPI) tends to be:

Typically if real wages fall, the quantity demanded of labor rises. If workers agree to 3% wage increases for a four-year period and inflation is more than 3%, then, based on this information alone:

Donna Newton made $0.30 per hour in 1946 at a small restaurant in Clearfield, Pennsylvania. If the consumer price index (CPI) was 18.3 in 1946 and 202.4 in 2011, then Donna's inflation-adjusted wage would be:

According to the textbook, the fully completed house that one could buy from the Sears catalog in 1924 would be:

You have to pay costs for your business now but you also have to enter into long-term contracts to repay loans in the future. If inflation occurs, the best term for the problem that occurs in this case is:

Your entertainment price index (EPI) was computed based on three goods: movie tickets, popcorn, and limeade. If you change the quantity of these goods from this year to next year and the prices of two of the three goods increase while the other price falls, then:

You own a store and have not raised prices recently-and now your store has more customers. Which statement is correct?

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

Assume the price of salt increased from $0.30 in 1985 to $0.50 in 1995. If we calculate the average rate of price increase for salt over this period, we could accurately say:

Refer to the following table to answer the next questions: -As presented in the table, the approximate rate of inflation (or deflation) from 2000-2001 was (rounded to the nearest percent):

Arguably there are three reasons why the consumer price index (CPI) overstates inflation. List the reasons and explain each one.

Inflation in Zimbabwe in 2008:

If 51% of all goods in the consumer price index (CPI) became more expensive and 49% became cheaper:

In Country Z, the prices of goods are measured on an annual basis on the last day of the year. In Country Y, the prices of goods are measured on a weekly basis every Wednesday. Comparing the two countries based on this information:

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