Deck 6: Measuring Inflation and Unemployment

Question 1

Which of the following would likely NOT cause inflation?

A) Government prints money to finance its budget shortfall.
B) Consumer confidence falls due to global economic concerns.
C) The housing market recovers and home sales rise.
D) Poor weather patterns lead to a supply shock in the farming industry.

Answer 1

B

Question 2

Which type of unemployment do economists attempt to resolve using economic policy?

A) frictional unemployment
B) structural unemployment
C) cyclical unemployment
D) frictional and cyclical unemployment

Answer 2

C

Question 3

Which of the following terms describes a situation in which there is a reduction in the rate of inflation from 4% to 3% per year?

A) hyperinflation
B) inflation
C) deflation
D) disinflation

Answer 3

D

Question 4

Which of the following is true about hyperinflation?

A) Financial assets in a hyperinflated currency quickly become worthless.
B) There have been no cases of hyperinflation in the world in the last two decades.
C) Hyperinflation occurs when the inflation rate exceeds 1,000% per year.
D) Hyperinflation can be stopped by printing larger denominations of paper currency.

Question 5

Which of the following persons is considered unemployed?

A) Enrique lost his job and has decided to go back to college to finish his degree.
B) Sharmila gave birth to a boy and is taking three months of maternity leave from her job.
C) Emily has not worked for two months, but still applies for jobs every week.
D) All are unemployed.

Question 6

Which of the following persons is considered part of the labor force?

A) Joe, a senior in high school who works part-time on weekends at the ice cream shop
B) Mary, who works as a librarian in prison because she poisoned her cheating boyfriend
C) Jamal, who just graduated from college and is backpacking in Europe for six months
D) Tessa, an 8-year-old who sells lemonade on the sidewalk for 50 cents a glass

Question 7

Janessa was laid off as a photo lab technician because of the lack of customers. She then found a job at a movie rental store, but was again laid off one month later when the store shut down. Janessa's bad luck staying employed is most likely due to:

A) frictional unemployment.
B) structural unemployment.
C) cyclical unemployment.
D) natural rate of unemployment.

Question 8

The twin perils of the modern macro economy are said to be:

A) government and the trade deficit.
B) unemployment and the trade surplus.
C) inflation and unemployment.
D) inflation and the trade deficit.

Question 9

Which of the following statements does NOT describe a problem in measuring the consumer price index (CPI)?

A) The CPI measures only private goods and services.
B) The CPI uses a fixed market basket of goods determined by surveys that are three to five years old.
C) Approximately 10% of the original market basket must be replaced each year by products that are improved or modified.
D) The CPI includes new products in its baskets.

Question 10

Which statement about chained consumer price index for urban consumers (C-CPI-U) is TRUE?

A) It does a better job in approximating a cost-of-living index than the CPI.
B) It takes less time to estimate than the CPI.
C) It is generally higher than the CPI.
D) It has no advantage over the CPI.

Question 11

Which one of the following would NOT lead to higher prices?

A) strong consumer demand
B) higher gas prices
C) an increase in the supply of money
D) an increase in the supply of food

Question 12

When the increase in prices goes from 5% to 2%, this is referred to as:

A) deflation.
B) disinflation.
C) inflation.
D) hyperinflation.

Question 13

The official unemployment rate as commonly reported by the Department of Labor each month does not include people who:

A) are actively seeking work.
B) are underemployed.
C) have not searched for work in the past week.
D) are underemployed or have not searched for work in the past week.

Question 14

Which of the following reasons does not contribute to a higher level of unemployment?

A) the existence of efficiency wages
B) a reduction in economic activity due to a recession
C) a lack of labor mobility as people choose to remain in their hometown
D) a reduction in union bargaining activities

Question 15

Which of the following groups benefits from an unanticipated rise in the inflation rate?

A) elderly people living on fixed incomes
B) creditors or lenders
C) workers on contracts without escalator clauses
D) homeowners with fixed-rate mortgages

Question 16

Frictional unemployment is:

A) short-term unemployment associated with people who are switching jobs.
B) long-term unemployment caused by changes in consumer demand or technology.
C) the unemployment that arises due to downturns in the business cycle.
D) equivalent to the natural rate of unemployment.

Question 17

If the price index is 200, how much did a $12 pizza (today) cost in the base year?

A) $1.20
B) $3.00
C) $6.00
D) $24.00

Question 18

If frictional unemployment is 2%, structural unemployment is 3%, and cyclical unemployment is 4%, the natural rate of unemployment is:

A) 2%.
B) 5%.
C) 7%.
D) 9%.

Question 19

If Chuck gets laid off from a high paying job and temporarily works as an Uber driver, he is considered:

A) not in the labor force.
B) a discouraged worker.
C) unemployed.
D) employed.

Question 20

Suppose the town of Treeville has a population of 200, of which 120 are in the labor force. Of those in the labor force, 100 are employed and 20 are unemployed. The unemployment rate in Treeville is _____.

A) 10%
B) 17%
C) 20%
D) 60%

Question 21

_____ is a measure of the change in average prices paid by urban consumers for a typical market basket of goods and services.

A) The consumer price index
B) The producer price index
C) Personal consumption expenditure
D) The GDP deflator

Question 22

What is real GDP in 2014 dollars if nominal GDP in 2014 is $15,000 billion, the GDP deflator in 2014 is 110, and the GDP deflator in 2010 was 100?

A) $9, 100 billion
B) $13,636 billion
C) $14,010 billion
D) $16, 500 billion

Question 23

The producer price index contains:

A) a fluctuating bundle of consumer goods and services.
B) price indexes for approximately 500 mining and manufacturing industries.
C) information from the consumer expenditure survey.
D) aggregate measures of price changes, organized by stage of processing.

Question 24

Measuring changes in a fixed basket of goods to assess changes in price is a _____ method.

A) cost-of-goods index
B) cost-of-living index
C) cost-of-production
D) utility maximization

Question 25

_____ is an overall decline in prices throughout the economy.

A) Disinflation
B) Deflation
C) Hyperinflation
D) The price level

Question 26

_____ is a measure of the changes in the average prices received by domestic producers for their output.

A) The consumer price index
B) The producer price index
C) Personal consumption expenditure
D) The GDP deflator

Question 27

Which of the following is NOT true?

A) The consumer price index does not account for product substitutions well.
B) The consumer price index does not account for all goods and services consumed by households.
C) The consumer price index is a cost-of-living index.
D) The consumer price index measures inflation.

Question 28

Suppose three years ago a nation's inflation rate was 8%, two years ago it was 5%, and last year it was 2%. This nation is undergoing:

A) deflation.
B) hyperinflation.
C) a drop in its price level.
D) disinflation.

Question 29

Arlina got a 5% raise while the rate of inflation was 6%. Arlina's standard of living:

A) rose by 1%.
B) rose by 2%.
C) fell by 3%.
D) fell by 1%.

Question 30

Jennifer received news that she is getting a 5% raise. However, the Bureau of Labor Statistics just reported that prices are rising by 7%. Based on the given information, which of the following is true?

A) Jennifer's purchasing power will rise by 2%.
B) Jennifer is losing purchasing power by 2%.
C) Inflation has no impact on purchasing power.
D) Jennifer's purchasing power will rise by 7%.

Question 31

_____ is an index of the average prices for all goods and services in the economy and is the broadest measure of inflation.

A) The consumer price index
B) The producer price index
C) Personal consumption expenditure
D) The GDP deflator

Question 32

The GDP deflator is an index that includes prices of all of the following EXCEPT:

A) consumer goods.
B) investment goods.
C) imports.
D) government goods and services.

Question 33

If the rate of inflation decreases from 5% to 3%, the economy is undergoing:

A) deflation.
B) hyperinflation.
C) disinflation.
D) stagflation.

Question 34

Inflation is a:

A) steady rise in the unemployment rate across all labor markets.
B) general rise in interest rates.
C) decline in confidence in prices.
D) general rise in prices.

Question 35

Last year, the consumer price index (CPI) was 115 while the consumer price index for this year is 125. The rate of inflation is:

A) 8.7%.
B) 8%.
C) 9.2%.
D) 10.8%.

Question 36

From 1999 to 2002, the Japanese inflation rates were, respectively, -0.3%, -0.6%, -0.7%, and -0.7%. During this time, the Japanese economy underwent:

A) inflation.
B) hyperinflation.
C) a rise in its price level.
D) deflation.

Question 37

The conversion formula for the current dollar value to the constant dollar value is:

A) real × (base year index / current year index).
B) nominal× (base year index / current year index).
C) real / (base year / current year index).
D) nominal / (base year / current year index).

Question 38

In the United States, our principal measure of inflation is:

A) the consumer price index.
B) gross domestic product.
C) the producer price index.
D) the Leading Economic Index.

Question 39

_____ is a reduction in the rate of inflation.

A) Disinflation
B) Deflation
C) Hyperinflation
D) The price level

Question 40

When an economy is going through disinflation:

A) prices are falling.
B) prices fall back to their original levels.
C) prices have stopped rising.
D) prices are rising at a slowing pace.

Question 41

Which of the following statements represents a problem with accurately measuring the price of health care?

A) Payments made by Medicaid and Medicare are not included.
B) People with good health insurance policies overuse health facilities.
C) Doctors sometimes charge excessive and inaccurate prices.
D) Pharmaceutical prices are not market prices.

Question 42

Which of the following items is NOT included in the GDP deflator?

A) bubble gum
B) turbines
C) fire engines
D) imported mangoes

Question 43

Suppose the market basket of goods and services cost $3,500 in 1996 but today costs $4,250. Using 1996 as the base year, the consumer price index for today is:

A) 79.6.
B) 120.0.
C) 82.4.
D) 121.4.

Question 44

(Table) According to the table, nominal GDP for 2013 is approximately: $$\begin{array} { | l | c | c | c | } \hline & \mathbf { 2 0 1 2 } & \mathbf { 2 0 1 3 } & \mathbf { 2 0 1 4 } \\\hline \text { Nominal GDP (billions of S) } & 7,280 & & 8,000 \\\hline \text { Real GDP (billions of S) } & 7,280 & 7,425 & \\\hline \text { GDP deflator } & & 103.6 & 106.1 \\\hline\end{array}$$

A) $7,292 billion.
B) $7,492 billion.
C) $7,692 billion.
D) $7,892 billion.

Question 45

Which of the following assumptions is NOT a problem in using the consumer price index (CPI) to accurately state the rate of inflation?

A) The CPI assumes that people do not substitute goods.
B) The CPI does not account for quality changes.
C) The CPI does not include new products.
D) The CPI does not deal with producer prices.

Question 46

Which of the following is included in the consumer price index?

A) price of bauxite
B) price of a hotel room in Beirut, Lebanon
C) price of crude oil
D) price of gasoline

Question 47

(Table) According to the table, real GDP for 2014 is approximately: $$\begin{array} { | l | c | r | r | } \hline & \mathbf { 2 0 1 2 } & \mathbf { 2 0 1 3 } & \mathbf { 2 0 1 4 } \\\hline \text { Nominal GDP (billions of \$) } & \$ 2,291 & & \$ 8,511 \\\hline \text { Real GDP (billions of \$) } & \$ 4,500 & \$ 5,865 & \\\hline \text { GDP Deflator } & & 86.1 & 112.7 \\\hline\end{array}$$

A) $6,552 billion.
B) $7,052 billion.
C) $7,552 billion.
D) $8,052 billion.

Question 48

If the cost of a typical market basket is 400 in 2018, 410 in 2019, and 405 in 2020, then during this period the economy is undergoing:

A) inflation.
B) disinflation.
C) deflation.
D) hyperinflation.

Question 49

(Table) According to the table, real GDP for 2014 is approximately: $$\begin{array} { | l | c | c | c | } \hline & \mathbf { 2 0 1 2 } & \mathbf { 2 0 1 3 } & \mathbf { 2 0 1 4 } \\\hline \text { Nominal GDP (billions of S) } & 7,280 & & 8,000 \\\hline \text { Real GDP (billions of S) } & 7,280 & 7,425 & \\\hline \text { GDP deflator } & & 103.6 & 106.1 \\\hline\end{array}$$

A) $7,540 billion.
B) $7,894 billion.
C) $8,106 billion.
D) $8,488 billion.

Question 50

Core inflation is found by removing _____ from the consumer price index.

A) housing
B) medical care
C) food and energy
D) producer prices

Question 51

Which of the following would be included in the consumer price index?

A) a payment made to your doctor on your behalf by Medicare
B) a payment made by you to your doctor
C) a payment made to your doctor on your behalf by your employer-provided insurance company
D) a payment made to your doctor on your behalf by Medicaid

Question 52

(Table) According to the table, nominal GDP for 2013 is approximately: $$\begin{array} { | l | c | r | r | } \hline & \mathbf { 2 0 1 2 } & \mathbf { 2 0 1 3 } & \mathbf { 2 0 1 4 } \\\hline \text { Nominal GDP (billions of \$) } & \$ 2,291 & & \$ 8,511 \\\hline \text { Real GDP (billions of \$) } & \$ 4,500 & \$ 5,865 & \\\hline \text { GDP Deflator } & & 86.1 & 112.7 \\\hline\end{array}$$

A) $5,050 billion.
B) $5,250 billion.
C) $5,450 billion.
D) $5,650 billion.

Question 53

When the Bureau of Labor Statistics calculates the consumer price index, it assumes that:

A) each consumer maximizes his or her utility.
B) consumers do not substitute cheaper goods for goods when prices have risen.
C) consumers overspend.
D) there is no unemployment.

Question 54

Most economists believe that the consumer price index _____ the rate of inflation.

A) understates
B) overstates
C) accurately states
D) dis-inflates

Question 55

The price of feed corn would be included in the:

A) consumer price index.
B) personal consumption expenditures price index.
C) producer price index.
D) core consumer price index.

Question 56

(Table) According to the table, the GDP deflator for 2012 is approximately: $$\begin{array} { | l | c | r | r | } \hline & \mathbf { 2 0 1 2 } & \mathbf { 2 0 1 3 } & \mathbf { 2 0 1 4 } \\\hline \text { Nominal GDP (billions of \$) } & \$ 2,291 & & \$ 8,511 \\\hline \text { Real GDP (billions of \$) } & \$ 4,500 & \$ 5,865 & \\\hline \text { GDP Deflator } & & 86.1 & 112.7 \\\hline\end{array}$$

A) 40.9.
B) 50.9.
C) 60.9.
D) 70.9.

Question 57

The consumer price index does NOT include:

A) the price of a haircut.
B) property taxes.
C) apartment rental rates.
D) the price of milk.

Question 58

The broadest measure of inflation is:

A) the consumer price index.
B) the GDP deflator.
C) the personal consumption expenditures index.
D) the producer price index.

Question 59

If the cost of a typical market basket in 2019 is 400 and the cost of a typical market basket in 2020 is 390, then during this period the economy is undergoing:

A) inflation.
B) disinflation.
C) deflation.
D) hyperinflation.

Question 60

Which of the following statements describes a difference between the consumer price index (CPI) and the producer price index (PPI)?

A) Only the CPI is associated with the problem of quality changes.
B) Only the PPI is associated with the problem of products dropped from the basket.
C) Only the PPI measures net revenues received by firms.
D) Only the PPI has a fixed market basket.

Question 61

If the nominal GDP is $13 trillion for a given year and the GDP deflator for that year is 115, then the real GDP is:

A) $11.3 trillion.
B) $14.95 trillion.
C) $12.0 trillion.
D) $13.0 trillion.

Question 62

Which of the following is a problem in measuring consumer prices?

A) The consumer price index does not account for product substitution.
B) The consumer price index is not easy to adjust to changes in the quality of products.
C) It takes time to include new products in the consumer price index.
D) All answer choices are correct.

Question 63

Nominal GDP in 2006 was $13,458.2 billion. In 2006, the GDP deflator was 116.9. What was the real GDP for 2006 if the GDP deflator uses 2000 as the base year?

A) $15,732.6 billion
B) $15,746.1 billion
C) $11,512.6 billion
D) $11,522.5 billion

Question 64

The current consumer price index is:

A) a cost-of-goods index.
B) a true cost-of-living measure.
C) based on a changing bundle of goods and services from one period to the next.
D) calculated by dividing the market basket's cost in the base period by its cost in the current period.

Question 65

Dave brags to his dad that his $45,000 starting salary as a computer programmer is much higher than his dad's $28,000 starting salary some years ago. If the consumer price index the year Dave begins work is 180.5 while the consumer price index the year his dad started work was 110.8, Dave is:

A) correct; adjusting for price changes, his salary is more than his dad's salary.
B) correct; adjusting for quantity changes, his salary is more than his dad's salary.
C) incorrect; adjusting for price changes, his salary is less than his dad's salary.
D) incorrect; adjusting for quantity changes, his salary is less than his dad's salary.

Question 66

If the current year's consumer price index is 214 and last year's consumer price index was 209, then the rate of inflation is:

A) 2.4%.
B) 5%.
C) 3%.
D) 2.8%.

Question 67

The GDP deflator shows that since the mid-1980s, the U.S. economy has had:

A) deflation.
B) hyperinflation.
C) an increasing inflation rate.
D) disinflation.

Question 68

What is your new salary if you earned $40,000 last year, the consumer price index increased from 120 to 125, and your salary is adjusted by the rate of inflation annually?

A) $38,400
B) $41,600
C) $41,666.67
D) $40,125

Question 69

Suppose the market basket of goods costs $10,000 in 2009, the base period, and that same basket of goods now costs $11,200. What has been the percentage change in the cost of goods between the base period and the current period?

A) +20%
B) +11.2%
C) -10.7%
D) -20%

Question 70

John expects to get a raise equal to the increase in the consumer price index (CPI). The CPI has gone from 160 to 164. If John's salary last year was $50,000, what salary does he expect to earn this year?

A) $51,250
B) $48,750
C) $52,220
D) $52,250

Question 71

If the cost of a typical market basket is 400 in 2018, 450 in 2019, and 550 in 2020, then during this period the economy is undergoing:

A) inflation.
B) disinflation.
C) deflation.
D) hyperinflation.

Question 72

In 2009, a market basket of goods and services cost $100 in Merryland while the same basket cost $200 in Berryland. In 2010, the cost in Merryland was $150 and in Berryland, the cost was $225. Based on the given information, which of the following statements is true?

A) Neither of the countries underwent inflation.
B) Berryland has more inflation than Merryland.
C) The countries have the same rate of inflation.
D) The rate of inflation is four times as large in Merryland as in Berryland.

Question 73

Janet is receiving a 5% pay raise. If the rate of inflation is 2%, then Janet's purchasing power is:

A) falling.
B) rising.
C) unaffected by either inflation or the pay raise, because they are expressed in nominal and not in real terms.
D) It is impossible to tell what is happening to Janet's purchasing power without further information.

Question 74

Suppose a market basket of goods costs $10,000 in 2009, the base period, and that same basket of goods now costs $11,200. What is the consumer price index for the current period?

A) 112.0
B) 120.0
C) 89.3
D) 132.0

Question 75

Prices from about _____ goods and services are collected each month by Bureau of Labor Statistics data collectors to be used in calculating the consumer price index.

A) 800
B) 8,000
C) 80,000
D) 800,000

Question 76

The inflation rate is 4%. If Social Security payments automatically rise by 4%, this adjustment is authorized by an:

A) inflation rate.
B) escalator clause.
C) elevator clause.
D) insanity clause.

Question 77

Which of the following is NOT generally considered a problem with using the consumer price index to measure consumer prices?

A) Only private goods are considered and public goods are excluded.
B) Many federal benefits and income tax rates are indexed to the consumer price index.
C) Quality improvements are difficult to account for.
D) New products are often overlooked.

Question 78

GDP is $10 trillion in 2001. If the GDP deflator is 100 in 2000 and is 110 in 2001, what is real GDP?

A) $10.0 trillion
B) $11.1 trillion
C) $9.09 trillion
D) $110.0 trillion

Question 79

Jill has an escalator clause in her labor contract that gives her a raise equal to the change in the consumer price index (CPI). Last year she earned $40,000 and the CPI was 100. If the CPI this year is 110, her new salary is:

A) $40,110.
B) $50,000.
C) $40,100.
D) $44,000.

Question 80

The GDP deflator for the base year is:

A) less than 100.
B) always equal to 100.
C) greater than 100.
D) dependent on the quantities of output and the prices at which outputs are sold in the base year.