Question 1

Suppose hypothetically that the consumer price index (CPI) was 150 in Year 1 and was 180 in Year 2. What would be the inflation rate for this period?

Accepted Answer

A)  12 percent.
B)  16.7 percent.
C)  20 percent.
D)  30 percent.

Question 2

Exhibit 7-2 Consumer Price Index  As shown in Exhibit 7-2, the rate of inflation for Year 2 is:

Accepted Answer

A)  5 percent.
B)  10 percent.
C)  20 percent.
D)  25 percent.

Question 3

The real interest rate can be expressed as the:

Accepted Answer

A)  nominal interest rate minus the real interest rate.
B)  inflation rate minus the nominal interest rate.
C)  nominal interest rate minus the inflation rate.
D)  nominal interest rate plus the inflation rate.

Question 4

During periods of hyperinflation, which of the following is the most likely response of consumers?

Accepted Answer

A)  Save as much as possible.
B)  Spend money as fast as possible.
C)  Invest as much as possible.
D)  Lend money.

Question 5

Disinflation means a decrease in:

Accepted Answer

A)  the rate of inflation.
B)  the general level of prices in the economy.
C)  the prices of all products in the economy.
D)  the circular flow.

Question 6

Suppose your nominal income this year is 5 percent higher than last year. If the inflation rate for the period was 3 percent, then your real income was:

Accepted Answer

A)  increased by 1.67 percent.
B)  increased by 2 percent.
C)  increased by 8 percent.
D)  decreased by 0.6 percent.

Question 7

If consumers reduce the purchase of goods whose relative prices rise (substitution bias), the consumer price index (CPI)will tend to have an upward bias over time (overstates inflation).

Accepted Answer

A) True 
 B)False

Question 8

Suppose a market basket of goods and services costs $1,000 in the base year and the consumer price index (CPI) is currently 110. This indicates the price of the market basket of goods and services is now:

Accepted Answer

A)  $110.
B)  $1,000.
C)  $1,100.
D)  $1,225.

Question 9

Which of the following statements is true ?

Accepted Answer

A)  Deflation is an increase in the general level of prices.
B)  The consumer price index (CPI) measures changes in the average prices of consumer goods and services.
C)  Disinflation is an increase in the rate of inflation.
D)  Real income is the actual number of dollars received over a period of time.
E)  The real interest rate equals the nominal rate of interest plus the inflation rate.

Question 10

If the consumer price index (CPI) in Year X was 300 and the CPI in Year Y was 325, the rate of inflation for Year Y was:

Accepted Answer

A)  325 percent.
B)  25 percent.
C)  5 percent.
D)  8 percent.

Question 11

A worker would be hurt least by inflation when the:

Accepted Answer

A)  worker anticipates inflation and increases savings at the bank.
B)  worker is protected by a cost-of-living adjustment clause in an employment contract.
C)  price level increases but at a decreasing rate.
D)  worker is protected by fixed annual increases in wages and benefits in an employment contract.

Question 12

During periods of inflation, all prices of all products are rising.

Accepted Answer

A) True 
 B)False

Question 13

A reduction in the rate of inflation is called:

Accepted Answer

A)  deflation.
B)  disinflation.
C)  hyperinflation.
D)  cost-push inflation.

Question 14

Inflation was a major problem in the United States during the early years of the Great Depression.

Accepted Answer

A) True 
 B)False

Question 15

An increase in the general price level is termed:

Accepted Answer

A)  the Consumer Price Index.
B)  inflation.
C)  deflation.
D)  stagflation.
E)  nominal pricing.

Question 16

The nominal rate of interest is equal to the real interest rate plus the inflation rate.

Accepted Answer

A) True 
 B)False

Question 17

Suppose the price of gasoline rises and consumers cut back on their use of gasoline relative to other consumer goods. This situation would contribute to which bias in the consumer price index?

Accepted Answer

A)  Substitution bias.
B)  Transportation bias.
C)  Quality bias.
D)  Indexing bias.

Question 18

Which of the following can create demand-pull inflation?

Accepted Answer

A)  Excessive aggregate spending.
B)  Sharply rising oil prices.
C)  Higher labor costs.
D)  Recessions and depressions.

Question 19

The base year in the consumer price index (CPI) is:

Accepted Answer

A)  given a value of zero.
B)  a year chosen as a reference for prices in all other years.
C)  always the first year in the current decade.
D)  established by law.

Question 20

Which of the following is true about inflation?

Accepted Answer

A)  Inflation promotes social harmony by uniting people against the government.
B)  Inflation is more damaging if it is anticipated.
C)  Accurate anticipation of inflation is possible for everyone who is well informed about economic events.
D)  Those who lend money at a rate below the rate of inflation suffer economic losses.
E)  If people accurately anticipate inflation, their actions will prevent it.

Exam 7: Inflation

During periods of inflation, all prices of all products are rising.

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Which of the following statements is true ?

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The base year in the consumer price index (CPI) is:

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Which of the following can create demand-pull inflation?

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Suppose hypothetically that the consumer price index (CPI) was 150 in Year 1 and was 180 in Year 2. What would be the inflation rate for this period?

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Which of the following is true about inflation?

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Suppose your nominal income this year is 5 percent higher than last year. If the inflation rate for the period was 3 percent, then your real income was:

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An increase in the general price level is termed:

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Disinflation means a decrease in:

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Suppose a market basket of goods and services costs $1,000 in the base year and the consumer price index (CPI) is currently 110. This indicates the price of the market basket of goods and services is now:

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The real interest rate can be expressed as the:

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The nominal rate of interest is equal to the real interest rate plus the inflation rate.

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Exhibit 7-2 Consumer Price Index As shown in Exhibit 7-2, the rate of inflation for Year 2 is:

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Inflation was a major problem in the United States during the early years of the Great Depression.

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If consumers reduce the purchase of goods whose relative prices rise (substitution bias), the consumer price index (CPI)will tend to have an upward bias over time (overstates inflation).

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During periods of hyperinflation, which of the following is the most likely response of consumers?

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A worker would be hurt least by inflation when the:

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If the consumer price index (CPI) in Year X was 300 and the CPI in Year Y was 325, the rate of inflation for Year Y was:

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Suppose the price of gasoline rises and consumers cut back on their use of gasoline relative to other consumer goods. This situation would contribute to which bias in the consumer price index?

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A reduction in the rate of inflation is called:

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