Question 1

If a Hershey's chocolate bar cost $0.05 in 1921 when the price index was 18 and the same size and weight Hershey's chocolate bar cost $0.05 in 1955 when the price index was 27, then

Accepted Answer

A)  the inflation-adjusted price of the bar would be lower in 1955 than in 1921. 
B)  the inflation-adjusted price of the bar would be higher in 1955 than in 1921. 
C)  Hershey's mispriced the bar due to a price confusion problem. 
D)  the United States must have experienced deflation during the period from 1921-1955. 
E)  menu costs for Hershey's were high.

Question 2

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 supplies 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.

Question 3

Your nominal wage increases by 10 percent, and the overall price level increases by 12 percent. 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.

Question 4

Typically the consumer price index CPI) is calculated by checking the prices of

Accepted Answer

A)  all goods in 38 geographic locations. 
B)  only consumer goods in all populated places in the United States using the Census Bureau's definition of a populated place). 
C)  about 8,000 goods in about 38 locations across the United States. 
D)  about 8,000 goods in about 38 locations in North America. 
E)  about 10,000 goods in about 75 locations in the United States.

Question 5

Which statement best represents the purpose for measuring annual inflation or deflation)?

Accepted Answer

A)  The main purpose is to find out how much the price of gasoline has increased from year to year. 
B)  The main purpose is to find out whether more goods have increased or decreased) in price compared to the number of goods whose price has decreased or increased). 
C)  The main purpose is to find out whether the overall cost of living has changed. 
D)  The main purpose is to find out whether the economy has produced more goods this year than last year. 
E)  The main purpose is to find out whether the cost of entertainment is more expensive or cheaper) this year than last year.

Question 6

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

Accepted Answer

A)  although U.S. inflation was generally higher in the 1970s and 1980s, that situation was reversed in the later years for the European Union. 
B)  inflation in both the United States and the European Union was higher in the 1990s than it was in the 1970s and 1980s. 
C)  deflation was a problem in the United States and the European Union in the 1990s, but inflation was a problem for both in the 1970s and 1980s. 
D)  U.S. and E.U. inflation both tended to be higher in the 1970s and 1980s than in the 1990s. 
E)  typically, while the European Union had inflation problems, the United States had deflation problems.

Question 7

In some nations the only currency is gold. Someone proposes the argument that if gold were the only currency, there could not be inflation. Would you agree or disagree with this statement? Explain.

Accepted Answer

The answer of In some nations the only currency is...

Question 8

In the equation M * V= P * Y, the variable Y stands for

Accepted Answer

A)  the price level. 
B)  the size of the money supply. 
C)  the rate of inflation. 
D)  nominal GDP. 
E)  real GDP.

Question 9

Consider the equation %$\Delta$M + %$\Delta$V$\approx$%$\Delta$P + %$\Delta$Y. If there is no change in real GDP %$\Delta$Y =0) and there is no change in the money supply %$\Delta$M = 0), what would have to happen for there to be inflation %$\Delta$P  0)?

Accepted Answer

A)  Money would have to change hands less often, %$\Delta$V  0. 
B)  Money supply times money velocity would have to go down, %$\Delta$M+ %$\Delta$V  0. 
C)  Nominal GPD would have to go down, %$\Delta$P+%$\Delta$Y 0. 
D)  Money would have to change hands more often, %$\Delta$V 0. 
E)  The money velocity would have to remain the same, %$\Delta$V = 0.

Question 10

In Bovania, milk constitutes 56 percent of the typical basket of goods for a typical consumer. Let's say the price of milk rises by 7 percent and the prices of all other goods fall by 4 percent. Based on the information given, we can definitely say

Accepted Answer

A)  the consumer price index CPI) in Bovania is greater than in the previous year. 
B)  the consumer price index CPI) in Bovania is less than in the previous year. 
C)  if consumers get a 4 percent pay raise, they are worse off in terms of their real income compared to inflation as measured by the Bovanian consumer price index CPI). 
D)  the gross domestic product GDP) deflator must be higher than the consumer price index CPI). 
E)  the gross domestic product GDP) deflator must be less than the consumer price index CPI).

Question 11

Inflation can create uncertainty by making

Accepted Answer

A)  the real value of past payments uncertain. 
B)  the nominal value of past payments uncertain. 
C)  the real value of future payments uncertain. 
D)  the nominal value of future payments uncertain. 
E)  wages unstable.

Question 12

The ratio Price Level in Earlier Time) / Price Level Today) would be used to

Accepted Answer

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

Question 13

According to the consumer price index CPI), in a particular year, the price of gasoline rises in the United States by 22 percent; simultaneously, the price of all food items falls by 8 percent. Which statement is correct?

Accepted Answer

A)  If gasoline prices rise in more of the 38 geographical locations than those in which it stays the same or falls, the food price changes are irrelevant. 
B)  This means that the price of gasoline must have increased in more of the 38 geographical locations where the CPI is measured and food prices must have fallen in more of those 38 locations. 
C)  Based solely on the information given, we cannot conclude what happened to the CPI. 
D)  This means that the price of gasoline and food rose in every geographic location where the CPI is measured. 
E)  This means that the price of gasoline and food rose in every place where gasoline and food were sold in the United States during that year.

Question 14

If the goods producers buy change dramatically between years, then

Accepted Answer

A)  this would be reflected in both the consumer price index CPI) and the gross domestic product GDP) deflator. 
B)  this would not be reflected in either the consumer price index CPI) or the gross domestic product GDP) deflator. 
C)  it would mean the market basket would be automatically updated to reflect the changes. 
D)  this would be reflected in the gross domestic product GDP) deflator but not the consumer price index CPI). 
E)  menu costs would fall.

Question 15

According to the July 2015 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.

Question 16

It is rare when prices fall in modern times. However, it is likely that they would fall during severe recessions. In what year is this most likely to have occurred?

Accepted Answer

A)  2005 
B)  2009 
C)  2011 
D)  2012 
E)  2003

Question 17

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.

Question 18

A price confusion problem is best described as the

Accepted Answer

A)  difficulty producers have in determining whether higher prices are due to increased demand or inflation. 
B)  difficulty consumers have in determining whether real prices have risen in order to decide whether they should buy more or less. 
C)  difficulty that producers have in determining whether a wage increase will lead to an increase in real costs. 
D)  problem consumers have in determining whether relative prices have changed when all prices are increasing, albeit at different rates. 
E)  problem both consumers and producers face in interpreting consumer price index CPI) data from the Bureau of Labor Statistics.

Question 19

If the price of a typical market basket of goods increased from about $20 in 1960 to $200 in early 2012, then it

Accepted Answer

A)  must not have contained the same goods in both periods. 
B)  rose at a 100 percent rate from 1960 until early 2012. 
C)  rose at a 10 percent rate per year from 1960 until early 2012. 
D)  rose by 10-fold from 1960 until early 2012. 
E)  rose by 40-fold from 1960 until early 2012.

Question 20

The website that provides official inflation statistics is

Accepted Answer

A)  HYPERLINK "http://www.econstats.com/" www.econstats.com. 
B)  HYPERLINK "http://www.bls.gov/" www.bls.gov. 
C)  HYPERLINK "http://www.bea.gov/" www.bea.gov. 
D)  HYPERLINK "http://www.inflation.gov/" www.inflation.gov. 
E)  HYPERLINK "http://www.econometrics.com/" www.econometrics.com.

Exam 8: The Price Level and Inflation

If a Hershey's chocolate bar cost $0.05 in 1921 when the price index was 18 and the same size and weight Hershey's chocolate bar cost $0.05 in 1955 when the price index was 27, then

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

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

Typically the consumer price index CPI) is calculated by checking the prices of

Which statement best represents the purpose for measuring annual inflation or deflation) ?

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

In some nations the only currency is gold. Someone proposes the argument that if gold were the only currency, there could not be inflation. Would you agree or disagree with this statement? Explain.

In the equation M * V= P * Y, the variable Y stands for

In Bovania, milk constitutes 56 percent of the typical basket of goods for a typical consumer. Let's say the price of milk rises by 7 percent and the prices of all other goods fall by 4 percent. Based on the information given, we can definitely say

Inflation can create uncertainty by making

The ratio Price Level in Earlier Time) / Price Level Today) would be used to

According to the consumer price index CPI) , in a particular year, the price of gasoline rises in the United States by 22 percent; simultaneously, the price of all food items falls by 8 percent. Which statement is correct?

If the goods producers buy change dramatically between years, then

According to the July 2015 consumer price index CPI) , the top three consumer expenditure categories are, respectively,

It is rare when prices fall in modern times. However, it is likely that they would fall during severe recessions. In what year is this most likely to have occurred?

The chained consumer price index CPI) tends to be

A price confusion problem is best described as the

If the price of a typical market basket of goods increased from about $20 in 1960 to $200 in early 2012, then it

The website that provides official inflation statistics is

Exam 8: The Price Level and Inflation

If a Hershey's chocolate bar cost $0.05 in 1921 when the price index was 18 and the same size and weight Hershey's chocolate bar cost $0.05 in 1955 when the price index was 27, then

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

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

Typically the consumer price index CPI) is calculated by checking the prices of

Which statement best represents the purpose for measuring annual inflation or deflation) ?

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

In some nations the only currency is gold. Someone proposes the argument that if gold were the only currency, there could not be inflation. Would you agree or disagree with this statement? Explain.

In the equation M * V= P * Y, the variable Y stands for

Consider the equation % Δ\DeltaΔ M + % Δ\DeltaΔ V ≈\approx≈ % Δ\DeltaΔ P + % Δ\DeltaΔ Y. If there is no change in real GDP % Δ\DeltaΔ Y =0) and there is no change in the money supply % Δ\DeltaΔ M = 0) , what would have to happen for there to be inflation % Δ\DeltaΔ P 0) ?

In Bovania, milk constitutes 56 percent of the typical basket of goods for a typical consumer. Let's say the price of milk rises by 7 percent and the prices of all other goods fall by 4 percent. Based on the information given, we can definitely say

Inflation can create uncertainty by making

The ratio Price Level in Earlier Time) / Price Level Today) would be used to

According to the consumer price index CPI) , in a particular year, the price of gasoline rises in the United States by 22 percent; simultaneously, the price of all food items falls by 8 percent. Which statement is correct?

If the goods producers buy change dramatically between years, then

According to the July 2015 consumer price index CPI) , the top three consumer expenditure categories are, respectively,

It is rare when prices fall in modern times. However, it is likely that they would fall during severe recessions. In what year is this most likely to have occurred?

The chained consumer price index CPI) tends to be

A price confusion problem is best described as the

If the price of a typical market basket of goods increased from about $20 in 1960 to $200 in early 2012, then it

The website that provides official inflation statistics is