Question 1

Suppose we shopped for a basket of goods in Year 1 and it cost $350. Suppose the same basket of goods adds up to $385 in Year 2. If we use Year 1 as a base year, what would be the Year 2 CPI?

Accepted Answer

A)   35.
B)   90.
C)   100.
D)   110.

Question 2

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 3

Suppose the Organization of Petroleum Exporting Countries (OPEC)  sharply increased the price of oil, which triggered higher inflation rates in the United States. This type of inflation is best classified as:

Accepted Answer

A)   pseudo-inflation.
B)   demand-pull inflation.
C)   cost-push inflation.
D)   hyperinflation.

Question 4

If the nominal interest rate is 5 percent and there is no inflation, then the real interest rate:

Accepted Answer

A)   exceeds 5 percent.
B)   is less than 5 percent.
C)   is 5 percent.
D)   is zero.

Question 5

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 6

Suppose hypothetically that you buy a lot of food such as tofu, veggie burgers, and organic fruit that are not included in the market basket used to compute the CPI. In addition, suppose that all of these goods have become cheaper over the last year, while the overall CPI has increased by 6 percent. Then which of the following is true ?

Accepted Answer

A)   The CPI will understate the negative impact of inflation on your purchasing power and standard of living.
B)   The CPI will still accurately state the negative impact of inflation on your purchasing power and standard of living.
C)   The CPI will overstate the negative impact of inflation on your purchasing power and standard of living.
D)   Inflation has a larger effect on your standard of living than on the average consumer.

Question 7

A reduction in the rate of inflation is called:

Accepted Answer

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

Question 8

Real income for a given year would be less than nominal income in that year if:

Accepted Answer

A)   the consumer price index was less than 100 in that year.
B)   nominal income in that year was greater than nominal income in the previous year.
C)   nominal income in that year was less than nominal income in the previous year.
D)   the consumer price index was greater than 100 in that year.

Question 9

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 10

Tina Eckstrom and her husband bought a deferred annuity that started paying them $700 a month in retirement benefits. They, along with millions of other people who live on fixed incomes, are examples of:

Accepted Answer

A)   those who are responsible for inflation.
B)   the big winners from inflation.
C)   the big losers from inflation.
D)   the paradox of thrift.

Question 11

Suppose the price of banana rises over time and consumers respond by buying fewer bananas. This situation contributes to which bias in the consumer price index?

Accepted Answer

A)   substitution bias
B)   transportation bias
C)   quality bias
D)   indexing bias

Question 12

Which of the following is not a cause of cost-push inflation?

Accepted Answer

A)   labor cost increases.
B)   energy cost increases.
C)   raw material cost increases.
D)   consumer incomes increase.

Question 13

In periods of high inflation,

Accepted Answer

A)   people want to hold on to as much money as possible.
B)   the purchasing power of money is decreasing.
C)   nobody wants to work and earn income.
D)   low nominal interest rates are likely to result. B

Question 14

A dramatic and sustained increase in oil prices would most likely:

Accepted Answer

A)   increase demand-pull inflation.
B)   decrease demand-pull inflation.
C)   increase cost-push inflation.
D)   decrease cost-push inflation.

Question 15

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.

Question 16

Which of the following statements is true ?

Accepted Answer

A)   Demand-pull inflation is caused by insufficient total spending.
B)   Cost-push inflation is caused by an increase in resource costs.
C)   If nominal interest rates remain the same and the inflation rate rises, real interest rates increase.
D)   If real interest rates are positive, lenders incur losses. B

Question 17

Consider borrowers and lenders who agree to loans with fixed nominal interest rates. If inflation is higher than what the borrowers and lenders expected, then who benefits from lower real interest rates?

Accepted Answer

A)   Only the borrowers benefit.
B)   Only the lenders benefit.
C)   Both borrowers and lenders benefit.
D)   Neither borrowers nor lenders.

Question 18

As the price of gasoline rose during the 1970s, consumers cut back on their use of gasoline relative to other consumer goods. This situation contributed to which bias in the consumer price index?

Accepted Answer

A)   substitution bias
B)   transportation bias
C)   quality bias
D)   indexing bias

Question 19

What are some criticisms of the CPI as a measure of inflation?

Accepted Answer

The CPI is criticized as a measure of in...

Question 20

Suppose that your income during Year X was $50,000, and the CPI for Year X was 150 (base year = Z=100) . Back in Year Z your income was $30,000. Has your real income (in year z dollars)   increased or decreased from Z to year X? By how much?

Accepted Answer

A)   Increased by $5,000.
B)   Increased by $3,333.
C)   Decreased by $5,000.
D)   Decreased by $3,333. B

Exam 13: Inflation

Suppose we shopped for a basket of goods in Year 1 and it cost $350. Suppose the same basket of goods adds up to $385 in Year 2. If we use Year 1 as a base year, what would be the Year 2 CPI?

Correct Answer
verified

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

Correct Answer
verified

Suppose the Organization of Petroleum Exporting Countries (OPEC) sharply increased the price of oil, which triggered higher inflation rates in the United States. This type of inflation is best classified as:

Correct Answer
verified

If the nominal interest rate is 5 percent and there is no inflation, then the real interest rate:

Correct Answer
verified

Which of the following can create demand-pull inflation?

Correct Answer
verified

Correct Answer
verified

A reduction in the rate of inflation is called:

Correct Answer
verified

Real income for a given year would be less than nominal income in that year if:

Correct Answer
verified

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:

Correct Answer
verified

Tina Eckstrom and her husband bought a deferred annuity that started paying them $700 a month in retirement benefits. They, along with millions of other people who live on fixed incomes, are examples of:

Correct Answer
verified

Suppose the price of banana rises over time and consumers respond by buying fewer bananas. This situation contributes to which bias in the consumer price index?

Correct Answer
verified

Which of the following is not a cause of cost-push inflation?

Correct Answer
verified

In periods of high inflation,

Correct Answer
verified
B

A dramatic and sustained increase in oil prices would most likely:

Correct Answer
verified

Which of the following is true about inflation?

Correct Answer
verified

Which of the following statements is true ?

Correct Answer
verified
B

Consider borrowers and lenders who agree to loans with fixed nominal interest rates. If inflation is higher than what the borrowers and lenders expected, then who benefits from lower real interest rates?

Correct Answer
verified

As the price of gasoline rose during the 1970s, consumers cut back on their use of gasoline relative to other consumer goods. This situation contributed to which bias in the consumer price index?

Correct Answer
verified

What are some criticisms of the CPI as a measure of inflation?

Correct Answer
verified
The CPI is criticized as a measure of in...
View Answer

Suppose that your income during Year X was $50,000, and the CPI for Year X was 150 (base year = Z=100) . Back in Year Z your income was $30,000. Has your real income (in year z dollars) increased or decreased from Z to year X? By how much?

Correct Answer
verified
B

Exam 13: Inflation

Suppose we shopped for a basket of goods in Year 1 and it cost $350. Suppose the same basket of goods adds up to $385 in Year 2. If we use Year 1 as a base year, what would be the Year 2 CPI?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose the Organization of Petroleum Exporting Countries (OPEC) sharply increased the price of oil, which triggered higher inflation rates in the United States. This type of inflation is best classified as:

Correct AnswerverifiedShow Answer

If the nominal interest rate is 5 percent and there is no inflation, then the real interest rate:

Correct AnswerverifiedShow Answer

Which of the following can create demand-pull inflation?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A reduction in the rate of inflation is called:

Correct AnswerverifiedShow Answer

Real income for a given year would be less than nominal income in that year if:

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

Tina Eckstrom and her husband bought a deferred annuity that started paying them $700 a month in retirement benefits. They, along with millions of other people who live on fixed incomes, are examples of:

Correct AnswerverifiedShow Answer

Suppose the price of banana rises over time and consumers respond by buying fewer bananas. This situation contributes to which bias in the consumer price index?

Correct AnswerverifiedShow Answer

Which of the following is not a cause of cost-push inflation?

Correct AnswerverifiedShow Answer

In periods of high inflation,

Correct AnswerverifiedB

A dramatic and sustained increase in oil prices would most likely:

Correct AnswerverifiedShow Answer

Which of the following is true about inflation?

Correct AnswerverifiedShow Answer

Which of the following statements is true ?

Correct AnswerverifiedB

Consider borrowers and lenders who agree to loans with fixed nominal interest rates. If inflation is higher than what the borrowers and lenders expected, then who benefits from lower real interest rates?

Correct AnswerverifiedShow Answer

As the price of gasoline rose during the 1970s, consumers cut back on their use of gasoline relative to other consumer goods. This situation contributed to which bias in the consumer price index?

Correct AnswerverifiedShow Answer

What are some criticisms of the CPI as a measure of inflation?

Correct AnswerverifiedThe CPI is criticized as a measure of in...View AnswerShow Answer

Suppose that your income during Year X was $50,000, and the CPI for Year X was 150 (base year = Z=100) . Back in Year Z your income was $30,000. Has your real income (in year z dollars) increased or decreased from Z to year X? By how much?

Correct AnswerverifiedB

Correct Answer
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B

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Correct Answer
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B

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Correct Answer
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Correct Answer
verified
The CPI is criticized as a measure of in...
View Answer

Correct Answer
verified
B