Question 1

Unit-of-account costs:

Accepted Answer

A) arise from the extra effort people must expend to reduce their holdings of money when inflation is high 
B) arise from the extra effort people must expend to reduce their holdings of money when inflation is high. 
C) are costs of changing listed prices of goods and services in response to inflation. 
D) are costs of changing listed prices of goods and services in response to inflation 
E) arise from the way inflation makes money less reliable as unit of measurement.
F)arise from the way inflation makes money less reliable as unit of measurement
G)are the cost savings associated with holding less money during times of inflation.
H)are the cost savings associated with holding less money during times of inflation

Question 2

Suppose that you typically purchase 15 salads, seven hamburgers, six orders of french fries, and seven cupcakes. Last year, each salad was $9.99, each hamburger was $2, each order of french fries was $2.49, and each cupcake was $1.50. This year, you purchase the same basket, but each salad costs $10.99, each hamburger costs $2.10, each order of french fries is $2.39, and each cupcake is $1.75.
(a) What was the cost of the basket last year?
(b) What is the cost of the basket this year?
(c) What is the rate of inflation or deflation from last year to this year?

Accepted Answer

The answer of Suppose that you typically purchase 15 salads,...

Question 3

Which of the following scenarios shows evidence of inflation?

Accepted Answer

A) You go to the soda machine and realize that a bottle of Fanta now costs 15 cents more. 
B) You visit the local grocery store and see that your favorite chips are on sale for today only. 
C) Your favorite bakery has changed ownership, and the cakes now seem to be lower in quality. 
D) Your friend lends you $1,000 and asks for 2% interest.

Question 4

You purchase a certificate of deposit that pays an advertised rate of 2.25% interest per year. What is your real rate of return if the actual inflation rate is 1.65%?

Accepted Answer

A) 2.25% 
B) -0.6% 
C) 1.65% 
D) 0.6%

Question 5

The table shows consumer price index data for the United Kingdom. Based on this information, what is the rate of inflation in 2016?
UK CONSUMER 
PRICE INDEX
$\begin{array} { | l | l | } 
\hline YEAR & CPI \
\hline 2013 & 98.2 \
\hline 2014 & 99.6 \
\hline 2015 & 100 \
\hline 2016 & 101 \
\hline 2017 & 103.6 \
\hline 2018 & 106 \
\hline
\end{array}$

Accepted Answer

A) 1.43% 
B) 2.29% 
C) 1% 
D) 2.32%

Question 6

You read in the newspaper that the consumer price index for 2019 is 120. You conclude that a typical market basket in 2019 would have cost _____ more than the same market basket purchased in _____.

Accepted Answer

A) 20%; 2010. 
B) 20%; 2010 
C) 120%; 2010. 
D) 120%; 2010 
E) 20%; the base year
F)20%; the base year.
G)120%; the base year.
H)120%; the base year

Question 7

Meredith has purchased a guaranteed income certificate (GIC) in Canada. This financial instrument pays her 1% interest per year. However, inflation during the same year is 2%. What was Meredith's nominal interest rate on her GIC?

Accepted Answer

A) 3% 
B) -1% 
C) 1% 
D) 2%

Question 8

(Table: GDP II) Use Table: GDP II. Calculate the GDP deflator for 2018. $$\begin{array} { | l | l | l | } 
\hline & \mathbf { 2 0 1 8 } & \mathbf { 2 0 1 9 } \
\hline \text { Nominal GDP } & 400 & 500 \
\hline \text { Real GDP } & 360 & 480 \
\hline
\end{array}$$

Accepted Answer

A) 111. 
B) 111 
C) 104. 
D) 104 
E) 90.
F)90
G)96
H)96.

Question 9

The table shows consumer price index data for the United States. In which year was the inflation rate the lowest?
$$\begin{array}{l}
\text { U.S. CONSUMER PRICE INDEX }\
\begin{array} { | c | c | } 
\hline \text { YEAR } & \begin{array} { c } 
\text { CONSUMER } \
\text { PRICE INDEX }
\end{array} \
\hline 1990 & 130.66 \
\hline 1991 & 136.17 \
\hline 1992 & 140.31 \
\hline 1993 & 144.48 \
\hline 1994 & 148.23 \
\hline 1995 & 152.38 \
\hline
\end{array}
\end{array}$$

Accepted Answer

A) 1991 
B) 1992 
C) 1993 
D) 1994

Question 10

If the price level at the end of year 1 is 110, and the price level at the end of year 2 is 120, the inflation rate in year 2 is _____.

Accepted Answer

A) 8.3% 
B) 8.3%. 
C) 10% 
D) 10%. 
E) 12%
F)12%.
G)120%
H)120%.

Question 11

In January of this year, Max purchases a financial instrument that has a nominal interest rate of 2.75%. The consumer price index in January was 211.93 and is expected to be 213.21 in a year. Suppose the consumer price index actually turns out to be 215.47 in one year. Based on this information, answer the following questions.
(a) What is the expected rate of inflation over the year?
(b) What is Max's expected real interest rate?
(c) What is Max's actual real rate of interest?

Accepted Answer

The answer of In January of this year, Max purchases...

Question 12

What are two costs of UNEXPECTED inflation?

Accepted Answer

The answer of What are two costs of UNEXPECTED inflation?...

Question 13

In the 1950s, the average price of a ticket to an afternoon movie was 14 cents. The price index in 1952 was 26.56. How much would that 14-cent movie ticket cost in today's dollars if the current price index is 251.1?

Accepted Answer

A) $1.32 
B) $1.46 
C) $0.15 
D) $1.00

Question 14

Use the following consumer price index data to answer the questions.
 $$\begin{array} { | c | c | } 
\hline \text { YEAR } & \begin{array} { c } 
\text { CONSUMER } \
\text { PRICE INDEX }
\end{array} \
\hline 1997 & 97.8 \
\hline 1998 & 99.2 \
\hline 1999 & 100 \
\hline 2000 & 102.5 \
\hline 2001 & 105 \
\hline 2002 & 108.4 \
\hline
\end{array}$$ ​
(a) What was the inflation rate in 2001?
(b) What was the inflation rate in 1998?
(c) Which year is the base year?
(d) Out of the years shown in the table, which year had the highest rate of inflation?
​
​

Accepted Answer

The answer of Use the following consumer price index data...

Question 15

Which of the following is an example of someone who is experiencing money illusion?

Accepted Answer

A) The CPI in an economy has decreased by 5%, but Vivian will not accept lower nominal wages because she believes this is unfair. 
B) The CPI in an economy has increased by 2.3%, and Paul's nominal wage is increased by 2.3%. 
C) Darren sees that prices in the economy have risen by 2% and that the nominal interest rate on his savings account rose 0.5%. So Darren knows he is experiencing a 1.5% decrease in his real interest earnings. 
D) Prices have not changed in the economy, so your boss does not give you a raise.

Question 16

Consider the following basket of goods: 15 lollipops, 10 bars of chocolate, four jars of peanut butter, and two ice-cream cakes. Suppose that in 1999, each lollipop was 10 cents, each bar of chocolate was $1.50, each jar of peanut butter was $2.50, and each ice-cream cake was $7.99. In 2018, each lollipop was 80 cents, each bar of chocolate was $3.75, each jar of peanut butter was $4.25, and each ice-cream cake was 12.99. What was the value of the basket in 2018?

Accepted Answer

A) $117.70 
B) $42.48 
C) $92.48 
D) $217.70

Question 17

Which price measure is likely to reflect the most rapid price changes?

Accepted Answer

A) the GDP deflator 
B) the GDP deflator. 
C) the Dow Jones Industrial Average. 
D) the Dow Jones Industrial Average 
E) the consumer price index.
F)the consumer price index
G)the producer price index
H)the producer price index.

Question 18

Suppose that a market basket used to construct a university student price index (USPI) consists of 4 textbooks and 100 gallons of gasoline. In 2018, the base year, textbooks cost $100 each, and gasoline costs $2 per gallon. In 2019, textbooks still cost $100 each, and gasoline costs $4 per gallon. The USPI for 2019 is:

Accepted Answer

A) 200.33. 
B) 200.33 
C) 116.67 
D) 116.67. 
E) 150.25
F)150.25.
G)16.67
H)16.67.

Question 19

What is Uganda's real GDP if its nominal GDP is $27.5 billion (in current US$), and the GDP deflator is 163.4?

Accepted Answer

A) $44.9 billion 
B) $16.8 billion 
C) $27.5 billion 
D) $12.4 billion

Question 20

In 1971, the cost of a four-year college degree from a public university was about $1,410. The consumer price index was 40.48 in January 1971. If the current consumer price index is 251.1, what is the approximate cost of the four-year degree in current dollars?

Accepted Answer

A) $8,746 
B) $1,410 
C) $227 
D) $9,422

Exam 24: Inflation and Money