Question 1

The equation M *V = P * Y is called the

Accepted Answer

A)  price-demand equation. 
B)  money-price equation. 
C)  equation of exchange. 
D)  equation of currency. 
E)  money velocity equation.

Question 2

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)  inflation 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 3

Refer to the following figure to answer the following 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.

Question 4

What does the fact that most countries' economies lie near the straight,slanting line in the graph below indicate?

Accepted Answer

A)  Most countries exercise tight control over their money supplies. 
B)  The rate at which prices rise is closely tied to the rate of money supply expansion. 
C)  In most countries,the inflation rate is very low. 
D)  It is very difficult for a government to shift the inflation rate away from its natural level. 
E)  The size of the money supply is determined almost entirely by the movement of prices.

Question 5

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 answer of Why would knowing the cost of living...

Question 6

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

Accepted Answer

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

Question 7

What are so-called shoe-leather costs associated with inflation? Explain and give examples.

Accepted Answer

The answer of What are so-called shoe-leather costs associated with...

Question 8

What is the consumer price index (CPI)?

Accepted Answer

A)  The CPI is the measure of consumer prices in both rural and urban areas.It is calculated by adding up all prices. 
B)  The CPI is a measure of the price level based on the consumption patterns of a typical consumer. 
C)  The CPI is a measure of all prices in the economy. 
D)  The CPI is a measure of food prices,because food is what is consumed. 
E)  The CPI is a measure of food,clothing,and housing prices.

Question 9

Explain the notion of money illusion in specific detail.

Accepted Answer

The answer of Explain the notion of money illusion in...

Question 10

Arguably,the increases in housing prices in 2005-2006 caused

Accepted Answer

A)  a menu cost problem for producers. 
B)  a price confusion problem for producers. 
C)  a money illusion problem for producers. 
D)  future price uncertainty for producers. 
E)  a money illusion problem for consumers.

Question 11

In Las Vegas,the cost of living index is 110,and in San Francisco,it is 170.You work in Las Vegas currently and your salary is $57,000.You are offered a promotion and pay raise of $70,000 to move to San Francisco.If you take the promotion

Accepted Answer

A)  your nominal wage and your real wage have increased. 
B)  your nominal wage increased but your real wage has decreased. 
C)  your nominal wage decreased but your real wage has increased. 
D)  both your nominal and real wage have decreased. 
E)  your real wage remained constant even though your nominal wage rose.

Question 12

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 percent. 
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 9.1 percent and Nation B is experiencing inflation of less than 8.4 percent.

Question 13

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.

Question 14

You are offered two jobs,one in Richmond,Virginia,paying $67,000,and one in San Diego,California,paying $79,000.The price index in Richmond is 104.5; in San Diego it is 132.3.If real wages are the only consideration,then you would

Accepted Answer

A)  be indifferent between the two jobs because the real wages would be about the same (within 2 percent). 
B)  definitely take the job in Richmond because the real wage is higher there. 
C)  definitely take the job in San Diego because the real wage is higher there. 
D)  likely take the job in Richmond because there is a Federal Reserve bank there and it would control inflation in the area. 
E)  likely take the job in San Diego,because better weather is directly correlated to real wages.

Question 15

Deflation

Accepted Answer

A)  automatically implies that,on average,everyone is better off because prices have fallen. 
B)  is the same as disinflation; it means the rate of inflation has fallen. 
C)  will make you better off if your nominal wages fall more slowly than prices. 
D)  will make you better off if your nominal wages fall more rapidly than prices. 
E)  will make you better off if your real wages fall more rapidly than prices.

Question 16

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.

Question 17

Explain how to calculate the inflation rate as a percentage,and how to interpret it.

Accepted Answer

The answer of Explain how to calculate the inflation rate...

Question 18

Consider the equation %$\Delta$M +%$\Delta$V $\approx$ %$\Delta$P + %$\Delta$Y.If the velocity of money does not change (%$\Delta$V= 0),and the change in real GDP exactly keeps pace with the change in the money supply (%$\Delta$M = %$\Delta$Y),what will happen to the price level (P)?

Accepted Answer

A)  It will go up,%$\Delta$P$\gt$0. 
B)  It will go down,%$\Delta$P $\lt$ 0. 
C)  It will stay the same,%$\Delta$P = 0. 
D)  It will equal the sum %$\Delta$M+%$\Delta$Y. 
E)  It will drop out of the equation.

Question 19

The percentage change in any economic variable,including the consumer price index (CPI),is measured by which equation?

Accepted Answer

A)  ((Previous Year - Current Year)/ Previous Year)*100 
B)  ((Current Year - Previous Year)/ Previous Year)* 100 
C)  ((Current Year - Previous Year)/ Current Year)*100 
D)  (Previous Year - Current Year)/ Previous Year 
E)  (Current Year - Previous Year)/ Previous Year

Question 20

Use the graph shown to discuss,in qualitative terms,the changes in the U.S.inflation rate from 1960 to 2012.Then estimate the inflation rate in 2012.

Accepted Answer

The answer of Use the graph shown to discuss,in qualitative...

Exam 21: The Price Level and Inflation

The equation M V = P Y is called the