Exam 8: The Price Level and Inflation

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Substitution: Consumers do not buy the s...

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A) almost exactly the same within 10 percent) as in 1922.
B) much higher twice or more) than in 1922.
C) much lower half or less) than in 1922.
D) a bit higher than in 1922.
E) a bit lower than in 1922.

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A) a better measure of prices than the traditional CPI, no matter what the circumstances.
B) a better measure of prices than the traditional CPI, but only if inflation is relatively high.
C) a better measure of prices than the traditional CPI, but only if inflation is relatively low.
D) equally as good as the traditional CPI, under all conditions.
E) a poor measure of prices but better than the gross domestic product GDP) deflator.

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A) increases.
B) increases if the price index falls.
C) increases if the percent increase in price index rises by more than the percent change in nominal income.
D) increases if you buy only the goods included in the consumer price index CPI) and the majority of those goods get cheaper.
E) decreases.

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The equation used is

where P₁ and P₂ ar...

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A) price-demand equation.
B) money-price equation.
C) equation of exchange.
D) equation of currency.
E) money velocity equation.

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A) all prices in the economy fall.
B) the prices of some goods rise and prices of some goods fall, but more goods have price increases than decreases.
C) the prices of some goods rise and prices of some goods fall, but fewer goods have price increases than decreases.
D) the overall level of prices of goods falls.
E) the overall level of prices of goods rises.

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A) price of salt increased at about a 40 percent rate per year during this period.
B) price of salt increased at about a 20 percent rate per year during this period.
C) price of salt increased by about 20 percent total during this period.
D) price of salt increased at about a 5 percent rate per year during this period.
E) real price of salt definitely increased during the period.

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A) Bureau of Economic Analysis.
B) Bureau of Labor Statistics.
C) Economic Adjustment Agency.
D) Department of Commerce Price Index Office.
E) Department of Vital Statistics.

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A) HYPERLINK "http://www.econstats.com/" www.econstats.com.
B) HYPERLINK "http://www.bls.gov/" www.bls.gov.
C) HYPERLINK "http://www.bea.gov/" www.bea.gov.
D) HYPERLINK "http://www.inflation.gov/" www.inflation.gov.
E) HYPERLINK "http://www.econometrics.com/" www.econometrics.com.

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A) The main purpose is to find out how much the price of gasoline has increased from year to year.
B) The main purpose is to find out whether more goods have increased or decreased) in price compared to the number of goods whose price has decreased or increased) .
C) The main purpose is to find out whether the overall cost of living has changed.
D) The main purpose is to find out whether the economy has produced more goods this year than last year.
E) The main purpose is to find out whether the cost of entertainment is more expensive or cheaper) this year than last year.

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A) 3 percent
B) 5 percent
C) 10 percent
D) 15 percent
E) 20 percent

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A) only includes final goods and services.
B) is not updated as frequently.
C) is more difficult to calculate.
D) underestimates true inflation.
E) overestimates true inflation.

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A) if it is under 15 percent, as it usually is in the United States.
B) if salaries rise at a slower rate than inflation.
C) if the prices of some goods fall even though the prices of others might be rising.
D) except that when it occurs, it creates uncertainty over future prices along with other possible deleterious effects) .
E) and is not preferred when compared to deflation.

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A) Take the earlier price and divide by today's price, then multiply by the ratio of the consumer price index CPI) today to that of the CPI in the old year.
B) Take the earlier price and multiply by the ratio of the earlier gross domestic product GDP) deflator to today's consumer price index.
C) Take today's price and divide by the earlier price in terms of the gross domestic product GDP) deflator.
D) Take the earlier price and multiply by the ratio of today's consumer price index CPI) to the earlier CPI.
E) Take the earlier price and multiply by the ratio of the earlier consumer price index CPI) to the current CPI.

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A) a menu cost problem for producers.
B) a price confusion problem for producers.
C) a money illusion problem for producers.
D) future price uncertainty for producers.
E) a money illusion problem for consumers.

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A) median rate of inflation.
B) movement of goods.
C) movement of prices.
D) quantity of money.
E) velocity of money.

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A) although U.S. inflation was generally higher in the 1970s and 1980s, that situation was reversed in the later years for the European Union.
B) inflation in both the United States and the European Union was higher in the 1990s than it was in the 1970s and 1980s.
C) deflation was a problem in the United States and the European Union in the 1990s, but inflation was a problem for both in the 1970s and 1980s.
D) U.S. and E.U. inflation both tended to be higher in the 1970s and 1980s than in the 1990s.
E) typically, while the European Union had inflation problems, the United States had deflation problems.

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