Question 1

The Consumer Price Index is

Accepted Answer

A)  A measure of changes in the average price of all goods and services.
B)  A measure of changes in the average price of consumer goods and services.
C)  Used to measure the impact of business speculation on consumers.
D)  The impact felt by consumers who move into a higher tax bracket because of inflation.

Question 2

During a period of deflation,

Accepted Answer

A)  Time horizons are longer.
B)  Consumer confidence increases.
C)  Lenders are better off.
D)  Borrowers are better off.

Question 3

If your rent increases from $1,000 to $1,100 over a period of one year and your income rises from $6,000 to $7,000,your nominal income has

Accepted Answer

A)  Increased,but your real income has decreased.
B)  Increased,and your real income has increased.
C)  Decreased,and your real income has decreased.
D)  Increased, but your real income has remained the same.

Question 4

Which of the following reflects changes in expenditure patterns as well as price changes?

Accepted Answer

A)  The CPI.
B)  The PPI.
C)  The GDP deflator.
D)  The COLA.

Question 5

In the year 1995,which of the following statements is true about the two countries represented in Figure 7.2?

Accepted Answer

A)  The countries had approximately the same rate of inflation.
B)  The CPI was virtually equal in the two countries.
C)  The market basket cost approximately the same in both countries.
D)  Real incomes were rising at the same rate in both countries.

Question 6

Use the following figure to answer the questions : Figure 7.3 : 
-During the time period represented in Figure 7.3,the purchasing power of the average worker

Accepted Answer

A)  Increased because nominal wages increased.
B)  Decreased because real income decreased.
C)  Stay the same because COLAs probably kept purchasing power approximately constant.
D)  Decreased because nominal income decreased.

Question 7

Inflation rates above 10 percent rarely occur

Accepted Answer

A)  In most countries today.
B)  In the United States.
C)  During wartime periods.
D)  None of the other choices.

Question 8

Item weight is the

Accepted Answer

A)  Measure of how much consumers demand a particular item.
B)  Percentage of the typical consumer budget spent on the item.
C)  Significance placed on a particular item by the wealthiest households.
D)  Physical weight of a good or service.

Question 9

If deflation is 0.5 percent per year and you receive a 1 percent decrease in your salary,then your

Accepted Answer

A)  Real income falls,but your nominal income remains unchanged.
B)  Real and nominal income both fall.
C)  Real income remains unchanged,but your nominal income rises.
D)  Real and nominal income both rise.

Question 10

Generally speaking,which of the following groups would tend to gain real income from the wealth effects of inflation?

Accepted Answer

A)  People with fixed income.
B)  People who have passbook savings accounts at fixed rates of interest.
C)  People who own assets that are appreciating faster than the inflation rate.
D)  People who hold all of their assets in the form of cash.

Question 11

Which of the following results from unexpected increases in the rate of inflation?

Accepted Answer

A)  Decreased uncertainty.
B)  Increased windfall profits to creditors who have lent large amounts of money.
C)  Redistributions of income and wealth between different groups.
D)  Creditors are made better off.

Question 12

The core inflation rate involves all price changes including food and energy.

Accepted Answer

A) True 
 B)False

Question 13

If your nominal income remains constant at $3,000 while the price of an important product in your budget,such as cell phone service,rises from $50 to $100,your real income has

Accepted Answer

A)  Decreased by $50.
B)  Decreased by $100.
C)  Decreased by $150.
D)  Remained constant.

Question 14

Deflation is a/an ____________ in the average level of prices of goods and services.

Accepted Answer

A)  increase
B)  decrease
C)  stagnation
D)  increase followed by a decrease

Question 15

The real interest rate is the rate of inflation minus the nominal interest rate.

Accepted Answer

A) True 
 B)False

Question 16

During a period of deflation,

Accepted Answer

A)  The price level rises.
B)  People on fixed incomes are better off.
C)  People who hold cash are worse off.
D)  Lenders are worse off.

Question 17

When there is no deflation or inflation,

Accepted Answer

A)  Prices of all goods change by the same percentage.
B)  Relative prices remain unchanged.
C)  Average prices do not change.
D)  Full employment is achieved.

Question 18

If consumers attempt to buy more goods than the economy can produce,the result is

Accepted Answer

A)  Unemployment.
B)  Demand-pull inflation.
C)  Cost-push inflation.
D)  The wealth effect.

Question 19

Use the following figure to answer the questions : Figure 7.1: 
-During the time period represented in Figure 7.1,Country A

Accepted Answer

A)  Experienced periods of both inflation and deflation.
B)  Never achieved the inflation goal set by the Full Employment and Balanced Growth Act of 1978.
C)  Had no need for COLAs.
D)  Experienced only inflation.

Question 20

Comparing changes in relative prices is more useful than examining average prices in

Accepted Answer

A)  Determining the redistribution of income.
B)  Determining the inflation rate.
C)  Deflating nominal income.
D)  Determining if there is deflation.

Exam 7: Inflation

When there is no deflation or inflation,

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If your rent increases from $1,000 to $1,100 over a period of one year and your income rises from $6,000 to $7,000,your nominal income has

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During a period of deflation,

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Item weight is the

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In the year 1995,which of the following statements is true about the two countries represented in Figure 7.2?

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If deflation is 0.5 percent per year and you receive a 1 percent decrease in your salary,then your

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The core inflation rate involves all price changes including food and energy.

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Comparing changes in relative prices is more useful than examining average prices in

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The real interest rate is the rate of inflation minus the nominal interest rate.

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Which of the following reflects changes in expenditure patterns as well as price changes?

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Deflation is a/an ____________ in the average level of prices of goods and services.

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Inflation rates above 10 percent rarely occur

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Use the following figure to answer the questions : Figure 7.1: -During the time period represented in Figure 7.1,Country A

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Which of the following results from unexpected increases in the rate of inflation?

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During a period of deflation,

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Use the following figure to answer the questions : Figure 7.3 : -During the time period represented in Figure 7.3,the purchasing power of the average worker

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The Consumer Price Index is

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Generally speaking,which of the following groups would tend to gain real income from the wealth effects of inflation?

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If your nominal income remains constant at $3,000 while the price of an important product in your budget,such as cell phone service,rises from $50 to $100,your real income has

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If consumers attempt to buy more goods than the economy can produce,the result is

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