Question 1

Last year the Olsen family earned $70,000. This year their income is $77,000. In an economy with an inflation rate of 8 percent, we can conclude that the Olsen's nominal income:

Accepted Answer

A)  and real income both increased.
B)  and real income both decreased.
C)  increased, but their real income decreased.
D)  decreased, but their real income increased.

Question 2

Those hurt by inflation include:

Accepted Answer

A)  labor unions with COLA clauses.
B)  borrowers.
C)  savers.
D)  owners of real estate.
E)  owners of precious metals, antiques, and works of art.

Question 3

Cost-push inflation is a result of an increase in the per unit costs of production.

Accepted Answer

A) True 
 B)False

Question 4

Cost-push inflation is due to:

Accepted Answer

A)  "too much money chasing too few goods".
B)  the economy operating at full employment.
C)  increases in production costs.
D)  all of these.

Question 5

One way the consumer price index (CPI) differs from the GDP chain price index is that it:

Accepted Answer

A)  includes only purchases of items bought by typical urban consumers.
B)  uses only current year quantities.
C)  is based on all final goods and services.
D)  includes only services.

Question 6

How is inflation typically measured? What are the different types of inflation? Why is it important to know which type of inflation we may be experiencing?

Accepted Answer

Inflation is typically measured by the CPI. The two types of inflation are demand-pull and cost-push. Demand-pull inflation is characterized by "too many dollars chasing too few goods and service." Demand-pull inflation is caused by total spending increasing faster than real GDP. Cost-push inflation is caused by anything that increases costs of production. Knowing which type of inflation we may be suffering from is important because each type of inflation requires a different policy prescription to combat.

Question 7

Which of the following correctly defines inflation?

Accepted Answer

A)  An increase in the price of a particular good or service.
B)  An increase in the general (average) price level of goods and services in the economy.
C)  The growth rate in real GDP.
D)  None of the above.

Question 8

The consumer price index (CPI) :

Accepted Answer

A)  adjusts for changes in product quality.
B)  includes separate market baskets of goods and services for both base and current years.
C)  includes only goods and services bought by typical urban consumer.
D)  uses current year quantities of goods and services. C

Question 9

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 10

The nominal rate of interest is any rate of interest below 3 percent.

Accepted Answer

A) True 
 B)False

Question 11

Inflation is defined as an increase in:

Accepted Answer

A)  real wages of workers.
B)  real GDP.
C)  the average price level.
D)  all consumer products.

Question 12

Suppose the consumer price index (CPI)for a given year is 150. This means the rate of inflation for the given year is 50 percent.

Accepted Answer

A) True 
 B)False

Question 13

If the rate of inflation in a given time period turns out to be lower than lenders and borrowers anticipated, then the effect will be:

Accepted Answer

A)  a redistribution of wealth from borrowers to lenders.
B)  a redistribution of wealth from lenders to borrowers.
C)  a net loss in purchasing power for lenders relative to borrowers.
D)  a net gain in purchasing power for borrowers relative to lenders.

Question 14

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.
E)  135.

Question 15

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.
E)  nobody wants to buy goods and services.

Question 16

Union contracts with built-in cost-of-living adjustments and home mortgages that vary with the rate of inflation are:

Accepted Answer

A)  inappropriate ways of combating inflation.
B)  examples of bracket creep.
C)  means of implementing fiscal policy.
D)  steps that can be taken to decrease the adverse impacts of inflation.
E)  examples of failed discarded policies of the 1970s.

Question 17

Suppose a market basket of goods and services costs $400 in the base year and $500 this year. The consumer price index (CPI) for this year is:

Accepted Answer

A)  25.
B)  100.
C)  125.
D)  500. C

Question 18

Inflation occurs when there is an increase in the purchasing power of money.

Accepted Answer

A) True 
 B)False

Question 19

One way the consumer price index (CPI) differs from the GDP chain price index is that the CPI:

Accepted Answer

A)  uses current year quantities of goods and services.
B)  includes separate market baskets of goods and services for both base and current years.
C)  includes only goods and services bought by typical urban consumers.
D)  is bias free.

Question 20

If the rate of inflation in a given time period turns out to be higher than lenders and borrowers anticipated, then the effect will be:

Accepted Answer

A)  a redistribution of wealth from borrowers to lenders.
B)  a net gain in purchasing power for lenders relative to borrowers.
C)  no change in the distribution of wealth between lenders and borrowers.
D)  none of these.

Exam 7: Inflation

Last year the Olsen family earned $70,000. This year their income is $77,000. In an economy with an inflation rate of 8 percent, we can conclude that the Olsen's nominal income:

Correct Answer
verified

Those hurt by inflation include:

Correct Answer
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Cost-push inflation is a result of an increase in the per unit costs of production.

Correct Answer
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Cost-push inflation is due to:

Correct Answer
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One way the consumer price index (CPI) differs from the GDP chain price index is that it:

Correct Answer
verified

How is inflation typically measured? What are the different types of inflation? Why is it important to know which type of inflation we may be experiencing?

Which of the following correctly defines inflation?

Correct Answer
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The consumer price index (CPI) :

Correct Answer
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C

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

The nominal rate of interest is any rate of interest below 3 percent.

Correct Answer
verified

Inflation is defined as an increase in:

Correct Answer
verified

Suppose the consumer price index (CPI)for a given year is 150. This means the rate of inflation for the given year is 50 percent.

Correct Answer
verified

If the rate of inflation in a given time period turns out to be lower than lenders and borrowers anticipated, then the effect will be:

Correct Answer
verified

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
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In periods of high inflation,

Correct Answer
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Union contracts with built-in cost-of-living adjustments and home mortgages that vary with the rate of inflation are:

Correct Answer
verified

Suppose a market basket of goods and services costs $400 in the base year and $500 this year. The consumer price index (CPI) for this year is:

Correct Answer
verified
C

Inflation occurs when there is an increase in the purchasing power of money.

Correct Answer
verified

One way the consumer price index (CPI) differs from the GDP chain price index is that the CPI:

Correct Answer
verified

If the rate of inflation in a given time period turns out to be higher than lenders and borrowers anticipated, then the effect will be:

Correct Answer
verified

Exam 7: Inflation

Last year the Olsen family earned $70,000. This year their income is $77,000. In an economy with an inflation rate of 8 percent, we can conclude that the Olsen's nominal income:

Correct AnswerverifiedShow Answer

Those hurt by inflation include:

Correct AnswerverifiedShow Answer

Cost-push inflation is a result of an increase in the per unit costs of production.

Correct AnswerverifiedShow Answer

Cost-push inflation is due to:

Correct AnswerverifiedShow Answer

One way the consumer price index (CPI) differs from the GDP chain price index is that it:

Correct AnswerverifiedShow Answer

How is inflation typically measured? What are the different types of inflation? Why is it important to know which type of inflation we may be experiencing?

Which of the following correctly defines inflation?

Correct AnswerverifiedShow Answer

The consumer price index (CPI) :

Correct AnswerverifiedC

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

The nominal rate of interest is any rate of interest below 3 percent.

Correct AnswerverifiedShow Answer

Inflation is defined as an increase in:

Correct AnswerverifiedShow Answer

Suppose the consumer price index (CPI)for a given year is 150. This means the rate of inflation for the given year is 50 percent.

Correct AnswerverifiedShow Answer

If the rate of inflation in a given time period turns out to be lower than lenders and borrowers anticipated, then the effect will be:

Correct AnswerverifiedShow Answer

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

In periods of high inflation,

Correct AnswerverifiedShow Answer

Union contracts with built-in cost-of-living adjustments and home mortgages that vary with the rate of inflation are:

Correct AnswerverifiedShow Answer

Suppose a market basket of goods and services costs $400 in the base year and $500 this year. The consumer price index (CPI) for this year is:

Correct AnswerverifiedC

Inflation occurs when there is an increase in the purchasing power of money.

Correct AnswerverifiedShow Answer

One way the consumer price index (CPI) differs from the GDP chain price index is that the CPI:

Correct AnswerverifiedShow Answer

If the rate of inflation in a given time period turns out to be higher than lenders and borrowers anticipated, then the effect will be:

Correct AnswerverifiedShow Answer

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C

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C

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