Deck 19: Inflation

Question 1

The most widely quoted measure of inflation in the United States is the

A) Phillips curve.
B) price output ratio.
C) consumer price index.
D) cost of living adjustment.
E) Dow Jones Industrial Average.

Answer 1

C

Question 2

In the base year,a price index has a value of

A) -1.
B) zero.
C) 1/100.
D) 100 × 100.
E) 100.

Answer 2

E

Question 3

In 1997,weekly payrolls in manufacturing were $553,while the consumer price index was 161 (1982-84 = 100).In terms of base-period dollars,real weekly earnings for the quarter were

A) identical to real weekly earnings in 1982-84.
B) greater than $553.
C) equal to $553.
D) less than $553.
E) impossible to determine from the information given.

Answer 3

D

Question 4

The value of money

A) rises during periods of inflation.
B) is inversely related to the price level.
C) is unaffected by creeping inflation.
D) has remained relatively constant in the United States over the past 25 years.
E) falls as real income rises.

Question 5

Suppose your employer agrees to increase your wage for next year at the same rate as the increase in the consumer price index for this year over last year.If the consumer price index for last year was 179.9 and the consumer price index for this year is 184.0 (1982-84 = 100),then your wage will go up by ________ percent.

A) 2.3
B) 4.1
C) 9.7
D) 84
E) 100

Question 6

Germany's decision after World War I to print more money rather than tax its citizens to pay reparations resulted in

A) runaway inflation that totally destroyed Germany's middle class.
B) severe creeping inflation that took several years to control.
C) decreased inflation.
D) a mild, temporary inflation that actually boosted economic production.
E) the value of the mark rising relative to the U.S. dollar.

Question 7

Inflation occurs whenever

A) aggregate demand rises.
B) the price of any given commodity rises.
C) the money supply increases more rapidly than output.
D) the tax rate is lower than the government spending rate.
E) the money supply falls.

Question 8

Inflation

A) means demand is falling and supply is rising.
B) increases the value of the money supply.
C) rarely affects the distribution of income or wealth.
D) is generally highest when there is plenty of excess capacity and unemployed resources.
E) is a general upward movement in the average level of prices.

Question 9

A consumer price index of 325 means that prices are ________ percent higher than those in the base year.

A) 325
B) 225
C) 125
D) 25
E) 3.25

Question 10

The consumer price index

A) is a 10-year moving average of commodity prices.
B) establishes the maximum price sellers may charge consumers.
C) lists the annual ratios of consumption to disposable income.
D) shows the ratio of cost of a market basket of goods and services in a given year to a base year.
E) is another name for aggregate demand.

Question 11

Runaway inflation

A) is less damaging to an economy than creeping inflation.
B) means that real income rises more rapidly than money income.
C) increases the value of money quickly and thoroughly.
D) results from rapidly escalating the amount of money being printed.
E) makes it less likely that people will engage in speculation.

Question 12

Creeping inflation

A) erodes the value of a country's money over a long period of time.
B) inevitably tends to die out.
C) has been the experience of the United States since its founding.
D) does not tend to redistribute income.
E) inevitably leads to runaway inflation.

Question 13

In 1973,a 1.75 liter bottle of your professor's favorite beverage cost $16.Today it costs $32.
The consumer price index for 1973 was 44.4 and the current consumer price index is 184
(1983-84 = 100).If the price of this beverage had kept pace with the rate of inflation,this
Bottle would cost your professor

A) $17.
B) $23.
C) $36.
D) $66.
E) $72.

Question 14

Suppose that the consumer price index is 160,using the base year of 1982-84.If a market basket of goods and services costs $525,what did it cost in the base year?

A) $30
B) $100
C) $160
D) $328
E) $525

Question 15

Over the past 50 years,the value of a U.S.dollar

A) has remained remarkably stable.
B) has steadily shrunk to less than one-sixth its previous value.
C) has gone up and down, finally declining to about one-half its former value.
D) declined steadily until the early 1980s, when it began to slowly rise again.
E) has risen steadily, hurting people on fixed incomes.

Question 16

High rates of inflation often characterize

A) depressions.
B) times of great unemployment.
C) wartime.
D) periods of falling aggregate demand.
E) rural areas.

Question 17

One adverse effect of unexpectedly high rates of inflation is that such inflation

A) redistributes income away from those with fixed money incomes.
B) redistributes income to lenders.
C) increases the value of savings.
D) encourages productive rather than speculative uses of saving.
E) causes real incomes to rise more rapidly than money incomes.

Question 18

Inflation that wipes out the value of money quickly and thoroughly is called

A) runaway inflation.
B) deflation.
C) push-pull inflation.
D) stagflation.
E) reflation.

Question 19

Inflation is said to be occurring when the

A) price of an individual commodity rises steadily because of increases in demand.
B) price of an individual commodity rises steadily because of decreases in supply.
C) value of the dollar increases.
D) consumer price index falls.
E) money income grows at a faster rate than real income.

Question 20

Income adjusted for changes in the price level is called ________ income.

A) fixed
B) money
C) nominal
D) current
E) real

Question 21

The following questions are based on the following aggregate supply-aggregate demand diagram:

The vertical axis shows

A) the money supply.
B) total real output.
C) the unemployment rate.
D) the price level.
E) wage rates.

Question 22

Which of the following conditions imposes the largest disincentive to speculate in precious metals and collectibles?

A) runaway inflation
B) negative real interest rates
C) price stability
D) significant increases in the general price level
E) a breakdown in the monetary system

Question 23

Wartime inflations are generally ________ inflations.

A) cost-overrun
B) sedentary-spending
C) supply-side
D) demand-side
E) parity-price

Question 24

Unanticipated inflation clearly imposes a cost on

A) everyone, because it reduces money incomes.
B) employees working under contracts with cost-of-living increase clauses.
C) borrowers.
D) lenders.
E) foreigners, because our exports cost more.

Question 25

Demand-side inflation is most likely to occur when the economy

A) has substantial excess capacity.
B) is approaching or operating at full employment.
C) has an aggregate demand curve shifting to the left.
D) has a horizontal aggregate supply curve.
E) has labor productivity rising faster than wages.

Question 26

The redistributive effects of high inflation rates tend to favor

A) the saver who keeps money in a cookie jar.
B) those who work under long-term contracts.
C) no one because the prices of goods and services rise.
D) pensioners and others who live on fixed incomes.
E) speculators in assets such as land, art, and bullion.

Question 27

The following questions are based on the following aggregate supply-aggregate demand diagram:

The horizontal axis shows

A) the money supply.
B) total real output.
C) the unemployment rate.
D) the price level.
E) wage rates.

Question 28

Inflation

A) hurts people living on fixed incomes.
B) inevitably tends to die out.
C) has been the experience of this country since its founding.
D) does not tend to redistribute income.
E) inevitably leads to deflation.

Question 29

In part,supply-side inflation

A) is at the heart of demand-side inflation.
B) is an example of too little money chasing too many goods.
C) is an outgrowth of a perfectly competitive market structure.
D) occurs when labor productivity rises faster than wage rates.
E) results from significant price increases of important resources.

Question 30

Inflation caused by increases in total intended spending is called

A) cost-push inflation.
B) the wage price spiral.
C) the crowding-out effect.
D) supply-side accommodation.
E) demand-side inflation.

Question 31

Which of the following must decline for demand-side inflation to slow?

A) productivity
B) spending
C) taxes
D) population
E) unemployment

Question 32

Inflation

A) depreciates money.
B) benefits lenders.
C) leaves income distribution unchanged.
D) penalizes speculators.
E) encourages the productive uses of savings.

Question 33

If national output is fixed and there is a 10 percent increase in total spending,the price level will

A) fall by 10 percent.
B) remain constant.
C) rise by 10 percent.
D) rise by 10 percent times the multiplier.
E) rise by 10 percent times the dollar value of output.

Question 34

Demand-side and supply-side inflations differ in that,in one case

A) total real output rises, and in the other, it falls.
B) the price level rises, and in the other, it falls.
C) borrowers benefit, and in the other, savers benefit.
D) businesses benefit, and in the other, householders benefit.
E) inflation is temporary, and in the other, it is permanent.

Question 35

During periods of high inflation,investors tend to buy real estate,art,and commodities like gold because

A) during inflation these are the only items that are not in short supply.
B) such items tend to grow in value at a rate higher than the inflation rate.
C) real estate and commodities are very cheap during periods of inflation.
D) banks and other lenders are very eager to support such investments.
E) the purchasing power of money rises during inflationary periods.

Question 36

Demand-side inflations indicate that the aggregate demand curve is shifting to the right along the ________ portion of an aggregate supply curve.

A) horizontal
B) downward-sloping
C) upward-sloping
D) backward-bending
E) rightward-shifting

Question 37

Inflation is sometimes called the arbitrary tax because

A) we never know when inflation will occur.
B) the rate of inflation is very difficult for economists to predict.
C) the rate of inflation is set by the government.
D) inflation affects the prices of various commodities in unpredictable ways.
E) its rewards and penalties are meted out with little regard for society's values or goals.

Question 38

The following questions are based on the following aggregate supply-aggregate demand diagram:

The economy is experiencing

A) demand-side inflation.
B) a serious recession.
C) falling money GDP.
D) too many goods chasing too few dollars.
E) price stability.

Question 39

The effects of inflation are less severe when the inflation is ________ inflation.

A) runaway
B) supply-side
C) anticipated
D) sedentary
E) accelerating

Question 40

Increases in the price level accompanied by reductions in total real output mean that the economy is experiencing

A) leftward shifts in the aggregate demand curve.
B) full employment.
C) technological advances leading to increased productivity.
D) leftward shifts in the Phillips curve.
E) supply-side inflation.

Question 41

Inflation accelerates or decelerates when the

A) NAIRU equals the natural rate of unemployment.
B) actual rate of unemployment remains below or above the NAIRU.
C) full-employment rate of unemployment remains above or below the natural rate of unemployment.
D) rate of change in productivity exceeds or falls short of the NAIRU.
E) unemployment rate exceeds or falls short of the rate of inflation.

Question 42

If the economy operates with 8 percent unemployment,the significance of the curve is that it implies that any economic policy that drives unemployment down to 5 percent does so at the cost of

A) adding about 3 percentage points to the rate of inflation.
B) adding about 4 percentage points to the rate of inflation.
C) adding about 5 percentage points to the rate of inflation.
D) adding about 7 percentage points to the rate of inflation.
E) increasing the rate of inflation by more than 7 percentage points.

Question 43

The following questions are based on the following graph, which shows the relationship between price levels and unemployment:

If the rate of unemployment is 5 percent,the annual rate of change in prices is ________ percent.

A) 7
B) 4
C) 3
D) 2
E) 1

Question 44

Inflationary conditions that emerge because of specific resource shortages or scarcities are called ________ inflations.

A) cost-overrun
B) sedentary-spending
C) supply-side
D) demand-side
E) parity-price

Question 45

The nonaccelerating inflation rate of unemployment is another name for the ________ rate of unemployment.

A) cyclical
B) Keynesian
C) natural
D) actual
E) sedentary

Question 46

The short-run relationship between the rate of change in the wage level and the level of unemployment is generally

A) positive.
B) inverse.
C) nonexistent.
D) reflexive.
E) inert.

Question 47

The inverse relationship between inflation and unemployment is a result of the fact that

A) as the unemployment rate decreases, it is easier for labor to get wage increases.
B) as the unemployment rate falls, demand for products and resources decreases.
C) as the unemployment rate increases, bottlenecks occur throughout the economy.
D) at low levels of unemployment, there is a significant amount of excess capacity.
E) as prices rise, unemployment also rises.

Question 48

The ________ administration is associated with a 10 percent surcharge on income taxes to reduce inflationary pressure.

A) Kennedy
B) Johnson
C) Ford
D) Carter
E) Reagan

Question 49

Historically,the inverse relationship between the level of unemployment and the rate of increase of wages is known as the ________ curve.

A) labor demand
B) aggregate supply
C) Phillips
D) Laffer
E) production possibilities

Question 50

The current thinking of economists is that the full-employment rate of unemployment in the United States occurs when about

A) 100 percent of the labor force is employed.
B) 5 percent of the labor force is unemployed.
C) 90 percent of the total population is employed.
D) 7.5 percent of the labor force is unemployed.
E) 67 percent of production costs are the result of employed labor.

Question 51

The Phillips curve illustrates the relationship between

A) aggregate demand and aggregate supply.
B) the interest rate and the money supply.
C) the rate of inflation and the rate of unemployment.
D) investment and the interest rate.
E) disposable income and saving.

Question 52

The nonaccelerating inflation rate of unemployment (NAIRU)is

A) a measure of those temporarily unemployed because of a recession.
B) calculated by dividing the unemployment rate by the employment rate.
C) considered by most economists to be no greater than 1-2 percent of the labor force.
D) based on the assumption that many people will not work unless they are forced to.
E) the unemployment rate associated with a constant rate of inflation.

Question 53

The supply-side inflation episodes of the 1970s

A) occurred during periods of full employment of both human and capital resources.
B)shifted the aggregate supply curve downward to the right.
C)were largely the result of crude oil price increases.
D)were touched off by a sharp decline in the money supply.
E)were caused, in part, by the lack of market power of labor unions and large corporations.

Question 54

Demand-side inflation results in a downward-sloping Phillips curve when the

A) aggregate demand curve slopes downward.
B) aggregate supply curve shifts to the left.
C) aggregate demand curve does not shift to the right or the left.
D) aggregate supply curve slopes upward.
E) price level is constant.

Question 55

The 10 percent tax surcharge of 1968 was intended to help alleviate

A) a severe recession.
B) stagflation.
C) falling interest rates.
D) demand-side inflationary pressures.
E) structural unemployment.

Question 56

From the standpoint of society,a stable Phillips curve indicates that

A) it is possible to have lower rates of inflation and unemployment simultaneously.
B) policies to increase employment also increase the price level.
C) wage increases that exceed productivity increases result in lower prices.
D) government policy makers need to make no fundamental choices between price stability and unemployment.
E) full employment can be defined as the unemployment rate at which price increases equal productivity increases.

Question 57

A leftward shift in the aggregate supply curve produces

A) demand-side inflation.
B) increases in real output.
C) supply-side inflation.
D) a higher standard of living.
E) a horizontal Phillips curve.

Question 58

Over the last four decades,the value of the NAIRU has tended to change because of

A) the stability of the Phillips curve.
B) disagreements over the definition of full employment.
C) revisions in the consumer price index.
D) changes in productivity growth.
E) the Employment Act of 1946.

Question 59

The inverse relationship between the inflation rate and the unemployment rate is a result of the assumption that

A) all inflation is demand-side inflation.
B) as the unemployment rate falls, demand for products and resources decreases.
C) as the unemployment rate rises, bottlenecks occur throughout the economy.
D) there is a significant amount of excess capacity at low unemployment rates.
E) as prices rise, unemployment also rises.

Question 60

Supply-side inflation is best illustrated by a

A) rightward shift in the aggregate supply curve.
B) rightward shift in the aggregate demand curve.
C) leftward shift in the aggregate supply curve.
D) leftward shift in the aggregate demand curve.
E) simultaneous rightward shift in the aggregate supply curve and a leftward shift in the aggregate demand curve.

Question 61

On a Keynesian-style aggregate supply curve,expansionary fiscal and monetary policies result in increases in real GDP,employment,and the price level when the economy operates in the ________ range.

A) horizontal
B) coincident
C) intermediate
D) vertical
E) optimal

Question 62

The following questions are based on the following diagram:

The tradeoff between unemployment and inflation occurs primarily when the economy's aggregate demand curve intersects the aggregate supply curve in

A) the horizontal range.
B) the upward-sloping range.
C) the vertical range.
D) all three ranges.
E) a manner impossible to determine from the diagram.

Question 63

The following questions are based on the following diagram:

The maximum national output and employment occur when the economy's aggregate demand curve intersects the aggregate supply curve in

A) the horizontal range.
B) the upward-sloping range.
C) the vertical range.
D) all three ranges.
E) a manner impossible to determine from the diagram.

Question 64

In 1997 the U.S.Treasury for the first time in its history issued bonds that were

A) available in denominations smaller than $2,500.
B) without a fixed maturity date.
C) payable in gold at maturity.
D) specifically targeted for foreign lenders.
E) indexed for inflation.

Question 65

The primary reason President Johnson opposed raising taxes during his administration was that

A) until rather late in his administration, he feared that falling price levels would reduce government income.
B) he believed a tax increase to fund an unpopular war would be politically unwise.
C) his Council of Economic Advisers warned him that such a move would harm more than help the economy.
D) his attention was largely consumed with putting a man on the moon.
E) he felt the Federal Reserve System could control inflation by issuing more money.

Question 66

On a Keynesian-style aggregate supply curve,increases in aggregate demand produce the greatest inflationary pressure when the economy operates in the ________ range.

A) horizontal
B) coincident
C) intermediate
D) vertical
E) optimal

Question 67

The following questions are based on the following diagram:

The rate of inflation is likely to be lowest when the economy's aggregate demand curve intersects the aggregate supply curve in

A) the horizontal range.
B) the upward-sloping range.
C) the vertical range.
D) all three ranges.
E) a manner impossible to determine from the diagram.

Question 68

Why were Johnson's 10 percent surtax and Nixon's price-control program ineffective in controlling the inflationary pressures they were designed to stop?

A) Both programs were based on the assumption that the aggregate supply was horizontal.
B) Both presidents misread the economic signs of the times that clearly pointed to no inflationary pressures.
C) Both were temporary in nature and so did little to deal with strong inflationary expectations.
D) These measures never received the approval or support of the Council of Economic Advisers.
E) The inflationary pressures had subsided by the time these programs were enacted.

Question 69

According to Michael Harrington in the video,the primary reason why the poor are those most affected by inflation is that they

A) tend to be unskilled.
B) are not organized.
C) do not really wish to work.
D) are not being reached by government programs.
E) are socially necessary so that rich people can behave charitably.

Question 70

On a Keynesian-style aggregate supply curve,expansionary fiscal and monetary policies have the smallest impact on the price level when the economy is operating in the ________ range.

A) horizontal
B) coincident
C) intermediate
D) vertical
E) optimal