Question 1

The value of the consumer price index (CPI) in 2011 was 229 compared to the base period's, which will always have the value of:

Accepted Answer

A)  1. 
B)  50. 
C)  100. 
D)  150 
E)  229. 
A)  1. 
B)  50. 
C)  100. 
D)  150 
E)  229.

Question 2

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

Accepted Answer

A)  typically, U.S. inflation was greater than E.U. inflation, with some very brief exceptions. 
B)  typically, E.U. inflation was greater than U.S. inflation, with some very brief exceptions. 
C)  there is no consistent relationship between U.S. and E.U. inflation. 
D)  typically, U.S. and E.U. inflation move together, but E.U. inflation had a much larger variance than that experienced in the United States. 
E)  typically, U.S. and E.U. inflation move in opposite directions and U.S. inflation had a much larger variance than that experienced by the European Union. 
A)  typically, U.S. inflation was greater than E.U. inflation, with some very brief exceptions. 
B)  typically, E.U. inflation was greater than U.S. inflation, with some very brief exceptions. 
C)  there is no consistent relationship between U.S. and E.U. inflation. 
D)  typically, U.S. and E.U. inflation move together, but E.U. inflation had a much larger variance than that experienced in the United States. 
E)  typically, U.S. and E.U. inflation move in opposite directions and U.S. inflation had a much larger variance than that experienced by the European Union.

Question 3

In Bovania, cattle compose 48% of the consumer price index (CPI), housing composes 32%, and entertainment accounts for the remaining 20%. If, in a certain year, the price of cattle rises by 30% and the price of housing rises by 25%, then:

Accepted Answer

A)  the value of the CPI must rise, no matter what happens to the price of entertainment because two-thirds of the CPI is more expensive. 
B)  the CPI has increased as long as the price of entertainment does not fall by more than 55%. 
C)  the CPI has increased, even if the entertainment in the next year is free. 
D)  the CPI has decreased if the price of entertainment falls by more than 27.5%. 
E)  it is not possible to tell what would happen to the CPI because it is certain that the goods included in the CPI must change. 
A)  the value of the CPI must rise, no matter what happens to the price of entertainment because two-thirds of the CPI is more expensive. 
B)  the CPI has increased as long as the price of entertainment does not fall by more than 55%. 
C)  the CPI has increased, even if the entertainment in the next year is free. 
D)  the CPI has decreased if the price of entertainment falls by more than 27.5%. 
E)  it is not possible to tell what would happen to the CPI because it is certain that the goods included in the CPI must change.

Question 4

The distinction between price confusion problems and menu costs is that:

Accepted Answer

A)  price confusion results from confusion between relative demand and inflationary pressures, whereas menu costs have to do with people confusing changes in nominal and real wages. 
B)  menu costs result from confusion between relative demand and inflationary pressures, whereas price confusion has to do with people confusing changes in nominal and real wages. 
C)  price confusion results from confusion between relative demand and inflationary pressures, whereas menu costs relate to producers changing prices, typically during inflationary periods. 
D)  menu costs occur during deflation, whereas price confusion problems occur during inflation. 
E)  menu costs only affect the food industry, whereas price confusion problems occur in high-tech industries. 
A)  price confusion results from confusion between relative demand and inflationary pressures, whereas menu costs have to do with people confusing changes in nominal and real wages. 
B)  menu costs result from confusion between relative demand and inflationary pressures, whereas price confusion has to do with people confusing changes in nominal and real wages. 
C)  price confusion results from confusion between relative demand and inflationary pressures, whereas menu costs relate to producers changing prices, typically during inflationary periods. 
D)  menu costs occur during deflation, whereas price confusion problems occur during inflation. 
E)  menu costs only affect the food industry, whereas price confusion problems occur in high-tech industries.

Question 5

If the value of the consumer price index (CPI) in 2013 was 135 and the value of the CPI in 2012 was 117, we could correctly say that:

Accepted Answer

A)  the typical basket of goods was about 18% more expensive in 2013 than in 2012. 
B)  the typical basket of goods was about 18% less expensive in 2013 than in 2012. 
C)  the typical basket of goods was about 15.4% more expensive in 2013 than in 2012. 
D)  the average price of all items included in gross domestic product (GDP) was about 18% more expensive in 2013 than in 2012. 
E)  the average price of all items included in GDP was about 15.4% more expensive in 2013 than in 2012. 
A)  the typical basket of goods was about 18% more expensive in 2013 than in 2012. 
B)  the typical basket of goods was about 18% less expensive in 2013 than in 2012. 
C)  the typical basket of goods was about 15.4% more expensive in 2013 than in 2012. 
D)  the average price of all items included in gross domestic product (GDP) was about 18% more expensive in 2013 than in 2012. 
E)  the average price of all items included in GDP was about 15.4% more expensive in 2013 than in 2012.

Question 6

If Robert was earning $10,000 and now earns $11,500, then:

Accepted Answer

A)  Robert's real income must have risen. 
B)  Robert's real wage has increased, but we can't tell about his nominal wage. 
C)  Robert could suffer from money illusion if prices increase by 15% or more. 
D)  Robert could experience menu costs if the items on the "value menu" increase in price. 
E)  Robert will be confused about relative price increases and inflation. 
A)  Robert's real income must have risen. 
B)  Robert's real wage has increased, but we can't tell about his nominal wage. 
C)  Robert could suffer from money illusion if prices increase by 15% or more. 
D)  Robert could experience menu costs if the items on the "value menu" increase in price. 
E)  Robert will be confused about relative price increases and inflation.

Question 7

Refer to the following figure when answering the next questions:  
-According to the figure, deflation was occurring:

Accepted Answer

A)  between 2003 and 2004. 
B)  from 1996 until 1999. 
C)  from 1996 through 1999 and between 2003 and 2004. 
D)  in none of the years shown. 
E)  in all of the years shown. 
A)  between 2003 and 2004. 
B)  from 1996 until 1999. 
C)  from 1996 through 1999 and between 2003 and 2004. 
D)  in none of the years shown. 
E)  in all of the years shown.

Question 8

From 1960 until 2012, the long-run average rate of inflation in the United States was:

Accepted Answer

A)  less than 1%. 
B)  about 4%. 
C)  about 8%. 
D)  about 12%. 
E)  negative. 
A)  less than 1%. 
B)  about 4%. 
C)  about 8%. 
D)  about 12%. 
E)  negative.

Question 9

In Nation A, the price index rises from 110 to 120 in a particular year. In the same year, the price level rises from 120 to 130 in Nation B. This means:

Accepted Answer

A)  inflation in both nations is 10%. 
B)  Nation B suffers from hyperinflation. 
C)  both nations suffer from hyperinflation. 
D)  Nation A is experiencing inflation but Nation B is experiencing deflation. 
E)  Nation A is experiencing inflation of less than 9.3% and Nation B is experiencing inflation of less than 8.5%. 
A)  inflation in both nations is 10%. 
B)  Nation B suffers from hyperinflation. 
C)  both nations suffer from hyperinflation. 
D)  Nation A is experiencing inflation but Nation B is experiencing deflation. 
E)  Nation A is experiencing inflation of less than 9.3% and Nation B is experiencing inflation of less than 8.5%.

Question 10

In Felixania, cat food constitutes 45% of the typical basket of goods for a typical consumer, dog food constitutes 3%, and all other goods constitute the remaining 52%. Assume the price of cat food rises by 4%, the price of dog food falls by 10%, and prices remain constant for all other goods. Based on the information given, we can definitely say:

Accepted Answer

A)  because the price of dog food fell by more than the price of cat food rose, the consumer price index (CPI) must have decreased. 
B)  the CPI in Felixania is more 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 Felixanian CPI. 
D)  because cat food is a luxury (as is dog food), consumers are certainly no worse off in terms of their real wages as measured by the Felixanian CPI. 
E)  menu costs have decreased. 
A)  because the price of dog food fell by more than the price of cat food rose, the consumer price index (CPI) must have decreased. 
B)  the CPI in Felixania is more 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 Felixanian CPI. 
D)  because cat food is a luxury (as is dog food), consumers are certainly no worse off in terms of their real wages as measured by the Felixanian CPI. 
E)  menu costs have decreased.

Question 11

Typically the largest percentage category in the consumer price index (CPI) is:

Accepted Answer

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

Question 12

Assume tuition at the University of Virginia cost $2,962 (per semester) in 2004 and $11,584 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 much 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 much 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 13

Inflation is not a problem:

Accepted Answer

A)  if it is under 15%, as it usually is in the United States. 
B)  if salaries rise at a slower rate than inflation. 
C)  if the prices of some goods fall even though the prices of others might be rising. 
D)  except that when it occurs, it creates uncertainty over future prices (along with other possible deleterious effects). 
E)  and is not preferred when compared to deflation. 
A)  if it is under 15%, as it usually is in the United States. 
B)  if salaries rise at a slower rate than inflation. 
C)  if the prices of some goods fall even though the prices of others might be rising. 
D)  except that when it occurs, it creates uncertainty over future prices (along with other possible deleterious effects). 
E)  and is not preferred when compared to deflation.

Question 14

If the price index in 1922 was 17 and a unit of Nabisco Oreo cookies cost $0.32, and if the price index today is 220 and a unit of Nabisco Oreo cookies costs $2.99, then the inflation-adjusted price of Oreos is:

Accepted Answer

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

Question 15

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 and the legal minimum wage in 2011 was $7.25, then:

Accepted Answer

A)  Donna's inflation-adjusted wage would be greater than the legal minimum wage in 2011. 
B)  Donna's inflation-adjusted wage would be less than the legal minimum wage in 2011. 
C)  Donna's inflation-adjusted wage would be equal to the legal minimum wage in 2011. 
D)  Donna would suffer from money illusion in 2011 if her real wage rose holding her nominal wage constant. 
E)  because of deflation in the years between 1946 and 2011, the inflation-adjusted wage would exceed the legal minimum in 2011. 
A)  Donna's inflation-adjusted wage would be greater than the legal minimum wage in 2011. 
B)  Donna's inflation-adjusted wage would be less than the legal minimum wage in 2011. 
C)  Donna's inflation-adjusted wage would be equal to the legal minimum wage in 2011. 
D)  Donna would suffer from money illusion in 2011 if her real wage rose holding her nominal wage constant. 
E)  because of deflation in the years between 1946 and 2011, the inflation-adjusted wage would exceed the legal minimum in 2011.

Question 16

Usually in the United States and other advanced economies:

Accepted Answer

A)  your real wage is more than your nominal wage. 
B)  your nominal wage is more than your real wage. 
C)  your real wage is the same as your nominal wage. 
D)  inflation increases the value of your real wage. 
E)  deflation usually occurs. 
A)  your real wage is more than your nominal wage. 
B)  your nominal wage is more than your real wage. 
C)  your real wage is the same as your nominal wage. 
D)  inflation increases the value of your real wage. 
E)  deflation usually occurs.

Question 17

Wages are often tied to expected rates of inflation; thus one reason why inflation is important is that:

Accepted Answer

A)  when wages rise faster than inflation, companies lose money. 
B)  when wages rise slower than inflation, workers suffer but corporate profits increase. 
C)  inflation creates uncertainty about costs and prices, which affects both employees and employers. 
D)  all inflation will eventually lead to hyperinflation, political instability, and war. 
E)  menu costs mean restaurants have to print new menus, which is costly and unpleasant. 
A)  when wages rise faster than inflation, companies lose money. 
B)  when wages rise slower than inflation, workers suffer but corporate profits increase. 
C)  inflation creates uncertainty about costs and prices, which affects both employees and employers. 
D)  all inflation will eventually lead to hyperinflation, political instability, and war. 
E)  menu costs mean restaurants have to print new menus, which is costly and unpleasant.

Question 18

In 1940 you could buy a "nickel Pepsi" for (oddly enough) a nickel. If the price index in 1940 was 14 and the 2011 price index was 221, then the inflation-adjusted price of a Pepsi would be:

Accepted Answer

A)  a nickel ($0.05). 
B)  a dime ($0.10). 
C)  about 79 cents ($0.79). 
D)  about $1.21. 
E)  $0.00317. 
A)  a nickel ($0.05). 
B)  a dime ($0.10). 
C)  about 79 cents ($0.79). 
D)  about $1.21. 
E)  $0.00317.

Question 19

The website that provides official inflation statistics is:

Accepted Answer

A)  www.econstats.com. 
B)  www.bls.gov. 
C)  www.bea.gov. 
D)  www.inflation.gov. 
E)  www.econometrics.com. 
A)  www.econstats.com. 
B)  www.bls.gov. 
C)  www.bea.gov. 
D)  www.inflation.gov. 
E)  www.econometrics.com.

Question 20

It has been shown that increases in the money supply are directly related to the rate of inflation. If the previous statement is true, then:

Accepted Answer

A)  nations that increase their money supply most rapidly will be the most prosperous. 
B)  hyperinflation will normally be associated with large increases in the money supply. 
C)  hyperinflation will normally be associated with large decreases in the money supply. 
D)  menu costs will rise when the money supply falls. 
E)  real wages rise whenever the money supply increases. 
A)  nations that increase their money supply most rapidly will be the most prosperous. 
B)  hyperinflation will normally be associated with large increases in the money supply. 
C)  hyperinflation will normally be associated with large decreases in the money supply. 
D)  menu costs will rise when the money supply falls. 
E)  real wages rise whenever the money supply increases.

The value of the consumer price index (CPI) in 2011 was 229 compared to the base period's, which will always have the value of:

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

In Bovania, cattle compose 48% of the consumer price index (CPI), housing composes 32%, and entertainment accounts for the remaining 20%. If, in a certain year, the price of cattle rises by 30% and the price of housing rises by 25%, then:

The distinction between price confusion problems and menu costs is that:

If the value of the consumer price index (CPI) in 2013 was 135 and the value of the CPI in 2012 was 117, we could correctly say that:

If Robert was earning $10,000 and now earns $11,500, then:

Refer to the following figure when answering the next questions: -According to the figure, deflation was occurring:

From 1960 until 2012, the long-run average rate of inflation in the United States was:

In Nation A, the price index rises from 110 to 120 in a particular year. In the same year, the price level rises from 120 to 130 in Nation B. This means:

Typically the largest percentage category in the consumer price index (CPI) is:

Assume tuition at the University of Virginia cost $2,962 (per semester) in 2004 and $11,584 in 2012. If the price index was 184 in 2004 and 226 in 2012, then we could say:

Inflation is not a problem:

If the price index in 1922 was 17 and a unit of Nabisco Oreo cookies cost $0.32, and if the price index today is 220 and a unit of Nabisco Oreo cookies costs $2.99, then the inflation-adjusted price of Oreos is:

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 and the legal minimum wage in 2011 was $7.25, then:

Usually in the United States and other advanced economies:

Wages are often tied to expected rates of inflation; thus one reason why inflation is important is that:

In 1940 you could buy a "nickel Pepsi" for (oddly enough) a nickel. If the price index in 1940 was 14 and the 2011 price index was 221, then the inflation-adjusted price of a Pepsi would be:

The website that provides official inflation statistics is:

It has been shown that increases in the money supply are directly related to the rate of inflation. If the previous statement is true, then:

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

The value of the consumer price index (CPI) in 2011 was 229 compared to the base period's, which will always have the value of:

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

In Bovania, cattle compose 48% of the consumer price index (CPI), housing composes 32%, and entertainment accounts for the remaining 20%. If, in a certain year, the price of cattle rises by 30% and the price of housing rises by 25%, then:

The distinction between price confusion problems and menu costs is that:

If the value of the consumer price index (CPI) in 2013 was 135 and the value of the CPI in 2012 was 117, we could correctly say that:

If Robert was earning $10,000 and now earns $11,500, then:

Refer to the following figure when answering the next questions: -According to the figure, deflation was occurring:

From 1960 until 2012, the long-run average rate of inflation in the United States was:

In Nation A, the price index rises from 110 to 120 in a particular year. In the same year, the price level rises from 120 to 130 in Nation B. This means:

Typically the largest percentage category in the consumer price index (CPI) is:

Assume tuition at the University of Virginia cost $2,962 (per semester) in 2004 and $11,584 in 2012. If the price index was 184 in 2004 and 226 in 2012, then we could say:

Inflation is not a problem:

If the price index in 1922 was 17 and a unit of Nabisco Oreo cookies cost $0.32, and if the price index today is 220 and a unit of Nabisco Oreo cookies costs $2.99, then the inflation-adjusted price of Oreos is:

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 and the legal minimum wage in 2011 was $7.25, then:

Usually in the United States and other advanced economies:

Wages are often tied to expected rates of inflation; thus one reason why inflation is important is that:

In 1940 you could buy a "nickel Pepsi" for (oddly enough) a nickel. If the price index in 1940 was 14 and the 2011 price index was 221, then the inflation-adjusted price of a Pepsi would be:

The website that provides official inflation statistics is:

It has been shown that increases in the money supply are directly related to the rate of inflation. If the previous statement is true, then:

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