Deck 6: Measuring Inflation and Unemployment

Question 1

The twin perils of the modern macroeconomy 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.

Answer 1

inflation and unemployment.

Question 2

What is real GDP in 2014 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) $9.1 billion
B) $13,636 billion
C) $14,010 billion
D) $16.500 billion

Answer 2

$13,636 billion

Question 3

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.

Answer 3

the consumer price index.

Question 4

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) increases in the supply of food

Question 5

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 6

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

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

Question 7

_____ 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 8

_____ is an overall decline in prices throughout the economy.

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

Question 9

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

Question 10

The conversion formula for the current dollar value to 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 11

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 12

_____ is a reduction in the rate of inflation.

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

Question 13

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

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

Question 14

The GDP deflator is an index that includes prices of all but:

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

Question 15

Jennifer just got news that she is getting a 5% raise.However,the Bureau of Labor Statistics just reported that prices are rising by 7%.

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

Question 16

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 17

_____ 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 18

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

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

Question 19

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 quickly includes new products in its baskets.

Question 20

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 21

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

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

Question 22

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 23

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 deleted products.
C) Only the PPI measures net revenues received by firms.
D) Only the PPI has a fixed market basket.

Question 24

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 25

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 26

Last year the consumer price index (CPI)was 115 and this year's CPI is 125.The rate of inflation is:

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

Question 27

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

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

Question 28

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 whose prices have risen.
C) consumers overspend.
D) there is no unemployment.

Question 29

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 30

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 31

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 32

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 33

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 34

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 35

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 36

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 37

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 38

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

A) understates
B) overstates
C) accurately states
D) disinflates

Question 39

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 40

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 41

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 and the year his dad started work it 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) mistaken.Adjusting for price changes,his salary is less than his dad's salary.
D) mistaken.Adjusting for quantity changes,his salary is less than his dad's salary.

Question 42

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.

Question 43

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

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

Question 44

Suppose the market basket of goods costs $10,000 in 2009,the reference or 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 45

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 trillion.
D) $13 trillion.

Question 46

If your salary was $50,000 last year and this year you receive a cost-of-living increase tied to the consumer price index (CPI),what will your salary be,assuming the CPI has risen from 110 to 114?

A) $49,114
B) $50,114
C) $50,300
D) $51,818

Question 47

In 2009,a market basket of goods and services cost $100 in Merryland;the same basket cost $200 in Berryland.In 2010,the cost in Merryland was $150 and in Berryland it was $225.Based on that 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 had the same rate of inflation.
D) The rate of inflation is four times as large in Merryland as in Berryland.

Question 48

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 to include new products in the consumer price index.
D) All answer choices are correct.

Question 49

Jill has an escalator clause in her labor contract that gives her a raise commensurate with 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 50

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

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

Question 51

What is your new salary if you earned $40,000 last year,the consumer price index went 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 52

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 53

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 54

GDP is $10 trillion in 2001.The GDP deflator is 100 in 2000 and is 110 in 2001.What is real GDP?

A) $10 trillion
B) $11.1 trillion
C) $9.09 trillion
D) $110 trillion

Question 55

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 56

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 57

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 58

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

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

Question 59

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

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

Question 60

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 61

An economy has a population of 226,500.Of them,12,500 are unemployed and actively seeking work,and 35,000 have given up looking for a job.Also,28,000 people work part-time,and 151,000 people work full-time.This economy's unemployment rate is _______.(Round the percentage to one decimal place;for example,0.0436 is 4.4%. )

A) 6.5%
B) 21.0%
C) 5.5%
D) 21.1%

Question 62

In 2012,the group with the LOWEST unemployment rate in the United States was:

A) high school graduates.
B) college graduates and higher.
C) people with less than a bachelor's degree.
D) people with less than a high school diploma.

Question 63

Suppose that anticipated inflation is 4% for the coming year,with loan contracts set at 7% in the expectation of a 3% return after inflation.If the actual inflation rate at the end of the year is 2%:

A) creditors gain at debtors' expense.
B) people on a fixed income see the purchasing power of their incomes rising.
C) debtors gain at creditors' expense.
D) there's a redistribution of income from creditors to debtors.

Question 64

In 2012,the group with the highest unemployment rate in the United States was:

A) whites.
B) African Americans.
C) Hispanics.
D) college graduates.

Question 65

Nominal GDP in the first quarter of 2010 was $14,592.3 billion.The GDP deflator was 110.2 in the first quarter of 2010.Real GDP for the first quarter of 2010 was equal to:

A) $13,133.1 billion.
B) $13,241.7 billion.
C) $13,103.9 billion.
D) $13,424.9 billion.

Question 66

During periods of inflation,which of the following events does NOT occur?

A) Mortgage lenders seek inflation adjustments.
B) Workers seek escalator clauses.
C) People on a fixed income have increased standards of living.
D) People on a fixed income have reduced standards of living.

Question 67

Which group is helped by inflation?

A) senior citizens on a fixed income
B) debtors
C) restaurant owners who must reprint menus
D) creditors

Question 68

Lexie works Monday to Friday from 4 P.M.to 6 P.M.in the after-school program at a local elementary school.She began looking for a full-time job last week and has already scheduled three job interviews.According to the Bureau of Labor Statistics,Lexie is:

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

Question 69

Unemployment rates over the past 50 years have tended to hover around:

A) 1% to 2%.
B) 5% to 6%.
C) 10% to 11%.
D) 25% to 26%.

Question 70

Zach has been laid off from his job as an aircraft worker and is afraid that he will not be recalled.He has been actively looking for a job but has had no luck for the past six weeks.According to the Bureau of Labor Statistics,Zach is:

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

Question 71

Which of the following statements about stopping hyperinflation is NOT correct?

A) The government must rein in the budget deficit.
B) The growth of the money supply must slow.
C) Borrowing from foreign governments must take place.
D) A change in government and a new currency are usually required.

Question 72

Suppose Robert has a wage contract subject to an escalator clause.He earned $22 an hour last year;in that same year,the consumer price index rose from 120.0 to 126.0.What should his new wage be?

A) $24 an hour
B) $23.10 an hour
C) $24.40 an hour
D) $22.50 an hour

Question 73

For your purchasing power to stay the same,your wages must:

A) increase faster than the rate of inflation.
B) increase at the same rate as inflation.
C) decrease as the rate of inflation increases.
D) increase more slowly than the rate of inflation.

Question 74

Inflation has significant long-run effects on the economy because:

A) it distorts the price signal and produces incentives for speculation.
B) it can enhance the purchasing power of a fixed income.
C) it can lead to an improvement in real values.
D) creditors can gain from inflation.

Question 75

All of the following are true for inflation EXCEPT that:

A) those on a fixed income lose purchasing power during inflationary periods.
B) creditors do not receive the full amount of the loan because the principle and interest rates are fixed.
C) debtors are hurt during inflationary times because the amount they pay creditors back increases.
D) increased prices due to high inflation cause consumers to spend less money.

Question 76

Last year,Megan's salary was $65,000.The consumer price index increased from 109 to 115.If Megan received a cost-of-living adjustment,what would her salary be?

A) $61,553
B) $61,320
C) $67,564
D) $68,578

Question 77

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

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

Question 78

Jordan Meadows lost his job as an airline pilot and has not been able to find another job as a pilot.Since he is old enough to be eligible for his pension,he decides to retire and devote himself to caring for his elderly parents,According to the Bureau of Labor Statistics,Jordan is:

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

Question 79

Retirees and creditors:

A) benefit from inflation because they are paid in cheaper dollars.
B) benefit from inflation because interest rates rise.
C) are hurt by inflation because their purchasing power drops.
D) are hurt by inflation because taxes fall.

Question 80

The main reason people were unemployed in the United States in 2012 was because they:

A) were new entrants into the labor force.
B) were reentrants into the labor force.
C) lost their job.
D) left their job.