Question 1

According to the March 2012 consumer price index (CPI), the top three consumer expenditure categories are, respectively:

Accepted Answer

A)  housing, transportation, and entertainment. 
B)  transportation, housing, and energy. 
C)  housing, medical care, and food and beverages. 
D)  transportation, housing, and medical care. 
E)  housing, transportation, and food and beverages. 
A)  housing, transportation, and entertainment. 
B)  transportation, housing, and energy. 
C)  housing, medical care, and food and beverages. 
D)  transportation, housing, and medical care. 
E)  housing, transportation, and food and beverages.

Question 2

Which of the following reflects a practical example of the price confusion problem?

Accepted Answer

A)  Lines are short at the coffee shop you own because your resource prices are rising and your retail prices must be raised at the same rate; your customers are confused as to whether they should buy from your shop or not. 
B)  Long lines at the coffee shop you own prompt you to open a new coffee shop, but the second shop is unsuccessful because the first shop's success was just due to your prices being set too low (below market prices) because of inflation. 
C)  It is difficult for you to determine whether the long lines at your coffee shop are due to increased demand or because inflation has created "too many dollars chasing too few goods." 
D)  It is difficult for you to determine the right signal to send to your consumers through prices because the signal sent to you by the Bureau of Labor Statistics is easily misinterpreted. 
E)  Signals sent from consumers to producers are clear, but those from producers to consumers are confused. 
A)  Lines are short at the coffee shop you own because your resource prices are rising and your retail prices must be raised at the same rate; your customers are confused as to whether they should buy from your shop or not. 
B)  Long lines at the coffee shop you own prompt you to open a new coffee shop, but the second shop is unsuccessful because the first shop's success was just due to your prices being set too low (below market prices) because of inflation. 
C)  It is difficult for you to determine whether the long lines at your coffee shop are due to increased demand or because inflation has created "too many dollars chasing too few goods." 
D)  It is difficult for you to determine the right signal to send to your consumers through prices because the signal sent to you by the Bureau of Labor Statistics is easily misinterpreted. 
E)  Signals sent from consumers to producers are clear, but those from producers to consumers are confused.

Question 3

Inflation necessarily occurs when:

Accepted Answer

A)  the price of gasoline rises. 
B)  a greater number of goods increase in price compared to the number of goods that undergo a price decrease. 
C)  the overall price level, such as the consumer price index (CPI), rises. 
D)  there is an increase in the rate of change in the price level. 
E)  the price of at least one good, but possibly more than one good, in the economy increases. 
A)  the price of gasoline rises. 
B)  a greater number of goods increase in price compared to the number of goods that undergo a price decrease. 
C)  the overall price level, such as the consumer price index (CPI), rises. 
D)  there is an increase in the rate of change in the price level. 
E)  the price of at least one good, but possibly more than one good, in the economy increases.

Question 4

The agency that measures the consumer price index (CPI) in the United States is:

Accepted Answer

A)  the Bureau of Economic Analysis. 
B)  the Bureau of Labor Statistics. 
C)  the Economic Adjustment Agency. 
D)  the Department of Commerce Price Index Office. 
E)  the Department of Vital Statistics. 
A)  the Bureau of Economic Analysis. 
B)  the Bureau of Labor Statistics. 
C)  the Economic Adjustment Agency. 
D)  the Department of Commerce Price Index Office. 
E)  the Department of Vital Statistics.

Question 5

According to the price confusion problem, if the price of a product increases, then:

Accepted Answer

A)  the market demand has increased, and the firm's output should increase. 
B)  the market demand has increased, and the firm's output should decrease. 
C)  the price increase is due to inflation, and the firm's output should increase. 
D)  the price increase is due to inflation, and the firm's output should decrease. 
E)  prices as a whole fall, and the firm's output should increase. 
A)  the market demand has increased, and the firm's output should increase. 
B)  the market demand has increased, and the firm's output should decrease. 
C)  the price increase is due to inflation, and the firm's output should increase. 
D)  the price increase is due to inflation, and the firm's output should decrease. 
E)  prices as a whole fall, and the firm's output should increase.

Question 6

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

Accepted Answer

A)  U.S. inflation and E.U. inflation were directly related, but E.U. inflation was generally more than U.S. inflation. 
B)  U.S. inflation and E.U. inflation were inversely related, but E.U. inflation was generally more than U.S. inflation. 
C)  U.S. inflation and E.U. inflation were directly related, but U.S. inflation was generally more than E.U. inflation. 
D)  U.S. inflation and E.U. inflation were inversely related, but U.S. inflation was generally more than E.U. inflation. 
E)  Both the United States and the European Union experienced deflation from about mid-1980 until about mid-1986. 
A)  U.S. inflation and E.U. inflation were directly related, but E.U. inflation was generally more than U.S. inflation. 
B)  U.S. inflation and E.U. inflation were inversely related, but E.U. inflation was generally more than U.S. inflation. 
C)  U.S. inflation and E.U. inflation were directly related, but U.S. inflation was generally more than E.U. inflation. 
D)  U.S. inflation and E.U. inflation were inversely related, but U.S. inflation was generally more than E.U. inflation. 
E)  Both the United States and the European Union experienced deflation from about mid-1980 until about mid-1986.

Question 7

The Bureau of Labor Statistics releases consumer price index (CPI) data:

Accepted Answer

A)  hourly. 
B)  daily. 
C)  weekly. 
D)  monthly. 
E)  only when the typical basket of goods changes. 
A)  hourly. 
B)  daily. 
C)  weekly. 
D)  monthly. 
E)  only when the typical basket of goods changes.

Question 8

In the 1970s, the government attempted to regulate prices to control inflation; this attempt was unsuccessful. The most likely reason was that:

Accepted Answer

A)  it increased menu costs. 
B)  it created future price certainty. 
C)  it removed relative price signals for those items that had actual increases in demand that were not due to inflation. 
D)  it created money illusion. 
E)  the Watergate break-in destroyed Americans' faith in the government. 
A)  it increased menu costs. 
B)  it created future price certainty. 
C)  it removed relative price signals for those items that had actual increases in demand that were not due to inflation. 
D)  it created money illusion. 
E)  the Watergate break-in destroyed Americans' faith in the government.

Question 9

Assume tuition at Penn State cost $6,142 (per semester) in 2007 and $7,562 in 2012. If the price index was 207.34 in 2007 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)  tuition is an inferior good. 
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)  tuition is an inferior good. 
E)  tuition suffers from menu costs due to inflation.

Question 10

The ratio of Price in an Earlier Time / Price in Today's Time:

Accepted Answer

A)  would be used to convert the consumer price index (CPI) to the gross domestic product (GDP) deflator. 
B)  would be used to convert today's price to an earlier price adjusting for inflation. 
C)  would be used to find the percentage of substitution bias. 
D)  would be used to find the percentage of the quality change bias. 
E)  would be used to convert an earlier price to today's price adjusting for inflation. 
A)  would be used to convert the consumer price index (CPI) to the gross domestic product (GDP) deflator. 
B)  would be used to convert today's price to an earlier price adjusting for inflation. 
C)  would be used to find the percentage of substitution bias. 
D)  would be used to find the percentage of the quality change bias. 
E)  would be used to convert an earlier price to today's price adjusting for inflation.

Question 11

Suppose a basket of goods and services has been selected to calculate the consumer price index (CPI) and 2002 has been chosen as the base year. In 2002, the basket's cost was $76.00; in 2004, the basket's cost was $79.50; and in 2006, the basket's cost was $85.00. The value of the CPI was:

Accepted Answer

A)  100 in 2002. 
B)  108 in 2004. 
C)  120 in 2006. 
D)  at least 118 in 2007. 
E)  no more than 90 in 2001. 
A)  100 in 2002. 
B)  108 in 2004. 
C)  120 in 2006. 
D)  at least 118 in 2007. 
E)  no more than 90 in 2001.

Question 12

Refer to the following table to answer the next  questions:  
-As presented in the table, the rate of inflation (or deflation) from 2002-2003 was (rounded to two decimal places):

Accepted Answer

A)  112.00%. 
B)  108.00%. 
C)  4.00%. 
D)  -4.25%. 
E)  -3.57%. 
A)  112.00%. 
B)  108.00%. 
C)  4.00%. 
D)  -4.25%. 
E)  -3.57%.

Question 13

Why would knowing the cost of living index be important in real life?
(Hint: Consider the following scenario. You get two job offers: one in San Francisco paying $80,000 per year and the other in Dallas paying $68,000 per year.)

Accepted Answer

The cost of living index will help you d

Question 14

If housing prices increase by 25% and the price of all other goods decreases by 22%, then:

Accepted Answer

A)  the consumer price index (CPI) would definitely fall during the year in question because housing prices do not constitute the majority of the CPI. 
B)  the CPI would definitely rise during the year in questions because housing prices do constitute the majority of the CPI. 
C)  the CPI would rise by about 1.5% because housing constitutes about half of the market basket in the CPI. 
D)  because housing spending is considered investment, the producer price index (PPI) but not the CPI would be the only price index affected by the change. 
E)  the CPI would only be affected in a small way because it includes about 8,000 goods and housing is only one of the 8,000. 
A)  the consumer price index (CPI) would definitely fall during the year in question because housing prices do not constitute the majority of the CPI. 
B)  the CPI would definitely rise during the year in questions because housing prices do constitute the majority of the CPI. 
C)  the CPI would rise by about 1.5% because housing constitutes about half of the market basket in the CPI. 
D)  because housing spending is considered investment, the producer price index (PPI) but not the CPI would be the only price index affected by the change. 
E)  the CPI would only be affected in a small way because it includes about 8,000 goods and housing is only one of the 8,000.

Question 15

Based on the weight of the consumer price index (CPI), the price of rental housing increases by 15% and that of owned housing by 5%. During the same year, the price of gasoline falls by 22%. We can say that:

Accepted Answer

A)  the CPI would definitely fall during the year in question. 
B)  the CPI would definitely rise during the year in question. 
C)  all other factors being constant, it is likely the CPI would rise during the year in question. 
D)  all other factors being constant, it is likely the CPI would fall during the year in question. 
E)  all other factors being constant, the CPI would change by about 6% because that is the average housing change plus the average gasoline change. 
A)  the CPI would definitely fall during the year in question. 
B)  the CPI would definitely rise during the year in question. 
C)  all other factors being constant, it is likely the CPI would rise during the year in question. 
D)  all other factors being constant, it is likely the CPI would fall during the year in question. 
E)  all other factors being constant, the CPI would change by about 6% because that is the average housing change plus the average gasoline change.

Question 16

If the consumer price index (CPI) was 100 in the period of 1982-1984, then:

Accepted Answer

A)  there would be deflation. 
B)  this period was the base period. 
C)  this period was characterized by menu costs. 
D)  this period was economically optimal. 
E)  this period was inflationary. 
A)  there would be deflation. 
B)  this period was the base period. 
C)  this period was characterized by menu costs. 
D)  this period was economically optimal. 
E)  this period was inflationary.

Question 17

Suppose a basket of goods and services has been selected to calculate the consumer price index (CPI) and 2002 has been selected as the base year. In 2002, the basket's cost was $600; in 2004, the basket's cost was $650; and in 2006, the basket's cost was $700. The value of the CPI in 2004 was (round to one decimal place):

Accepted Answer

A)  92.3. 
B)  106.3. 
C)  108.3. 
D)  152.0. 
E)  more than 155.0. 
A)  92.3. 
B)  106.3. 
C)  108.3. 
D)  152.0. 
E)  more than 155.0.

Question 18

The average inflation rate in the United States from 2000-2012 was about:

Accepted Answer

A)  20%. 
B)  10%. 
C)  5%. 
D)  2%. 
E)  -4%. 
A)  20%. 
B)  10%. 
C)  5%. 
D)  2%. 
E)  -4%.

Question 19

Your nominal wage increases by 10%, and the overall price level increases by 12%. Which statement is correct?

Accepted Answer

A)  If you feel richer, you are experiencing money illusion. 
B)  You face a price confusion problem. 
C)  You face a menu costs problem. 
D)  You would be certain that your real wage had increased. 
E)  Bureau of Labor Statistics factors would cause you to experience deflation. 
A)  If you feel richer, you are experiencing money illusion. 
B)  You face a price confusion problem. 
C)  You face a menu costs problem. 
D)  You would be certain that your real wage had increased. 
E)  Bureau of Labor Statistics factors would cause you to experience deflation.

Question 20

One improvement of the chained consumer price index (CPI) over the traditional CPI is that:

Accepted Answer

A)  the chained CPI more quickly takes into account new goods. 
B)  the chained CPI accounts for substitution between goods. 
C)  the chained CPI is "progressive," whereas the traditional CPI is "regressive." 
D)  the traditional CPI measures Engle's law but ignores the Paasche effect, which is included in the chained CPI. 
E)  The chained CPI more easily accounts for deflation. 
A)  the chained CPI more quickly takes into account new goods. 
B)  the chained CPI accounts for substitution between goods. 
C)  the chained CPI is "progressive," whereas the traditional CPI is "regressive." 
D)  the traditional CPI measures Engle's law but ignores the Paasche effect, which is included in the chained CPI. 
E)  The chained CPI more easily accounts for deflation.

According to the March 2012 consumer price index (CPI), the top three consumer expenditure categories are, respectively:

Which of the following reflects a practical example of the price confusion problem?

Inflation necessarily occurs when:

The agency that measures the consumer price index (CPI) in the United States is:

According to the price confusion problem, if the price of a product increases, then:

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

The Bureau of Labor Statistics releases consumer price index (CPI) data:

In the 1970s, the government attempted to regulate prices to control inflation; this attempt was unsuccessful. The most likely reason was that:

Assume tuition at Penn State cost $6,142 (per semester) in 2007 and $7,562 in 2012. If the price index was 207.34 in 2007 and 226 in 2012, then we could say:

The ratio of Price in an Earlier Time / Price in Today's Time:

Suppose a basket of goods and services has been selected to calculate the consumer price index (CPI) and 2002 has been chosen as the base year. In 2002, the basket's cost was $76.00; in 2004, the basket's cost was $79.50; and in 2006, the basket's cost was $85.00. The value of the CPI was:

Refer to the following table to answer the next questions: -As presented in the table, the rate of inflation (or deflation) from 2002-2003 was (rounded to two decimal places):

Why would knowing the cost of living index be important in real life? (Hint: Consider the following scenario. You get two job offers: one in San Francisco paying $80,000 per year and the other in Dallas paying $68,000 per year.)

If housing prices increase by 25% and the price of all other goods decreases by 22%, then:

Based on the weight of the consumer price index (CPI), the price of rental housing increases by 15% and that of owned housing by 5%. During the same year, the price of gasoline falls by 22%. We can say that:

If the consumer price index (CPI) was 100 in the period of 1982-1984, then:

The average inflation rate in the United States from 2000-2012 was about:

Your nominal wage increases by 10%, and the overall price level increases by 12%. Which statement is correct?

One improvement of the chained consumer price index (CPI) over the traditional CPI is that:

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

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Exam 8: The Price Level and Inflation

According to the March 2012 consumer price index (CPI), the top three consumer expenditure categories are, respectively:

Which of the following reflects a practical example of the price confusion problem?

Inflation necessarily occurs when:

The agency that measures the consumer price index (CPI) in the United States is:

According to the price confusion problem, if the price of a product increases, then:

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

The Bureau of Labor Statistics releases consumer price index (CPI) data:

In the 1970s, the government attempted to regulate prices to control inflation; this attempt was unsuccessful. The most likely reason was that:

Assume tuition at Penn State cost $6,142 (per semester) in 2007 and $7,562 in 2012. If the price index was 207.34 in 2007 and 226 in 2012, then we could say:

The ratio of Price in an Earlier Time / Price in Today's Time:

Suppose a basket of goods and services has been selected to calculate the consumer price index (CPI) and 2002 has been chosen as the base year. In 2002, the basket's cost was $76.00; in 2004, the basket's cost was $79.50; and in 2006, the basket's cost was $85.00. The value of the CPI was:

Refer to the following table to answer the next questions: -As presented in the table, the rate of inflation (or deflation) from 2002-2003 was (rounded to two decimal places):

Why would knowing the cost of living index be important in real life? (Hint: Consider the following scenario. You get two job offers: one in San Francisco paying $80,000 per year and the other in Dallas paying $68,000 per year.)

If housing prices increase by 25% and the price of all other goods decreases by 22%, then:

Based on the weight of the consumer price index (CPI), the price of rental housing increases by 15% and that of owned housing by 5%. During the same year, the price of gasoline falls by 22%. We can say that:

If the consumer price index (CPI) was 100 in the period of 1982-1984, then:

The average inflation rate in the United States from 2000-2012 was about:

Your nominal wage increases by 10%, and the overall price level increases by 12%. Which statement is correct?

One improvement of the chained consumer price index (CPI) over the traditional CPI is that:

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

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