Question 1

List three different price indices and explain how they differ in terms of the market basket on which they are based.
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Accepted Answer

Three examples of price indices are the ...

Question 2

If inflation is completely anticipated:

Accepted Answer

A)  no-one loses.
B)  borrowers lose.
C)  lenders lose.
D)  firms lose because they incur menu costs.

Question 3

In 1986, an Apple IIe computer with 65 kilobytes of memory cost around $1 500. Today, a $1 500 iMac computer (also made by Apple) comes with 8 gigabytes of memory. This illustrates the potential for what kind of bias in CPI calculations?

Accepted Answer

A)  new product bias
B)  substitution bias
C)  increase in quality bias
D)  outlet bias

Question 4

If the anticipated rate of inflation is 5% and workers agree to a wage increase of 4%, if the anticipated rate occurs, then nominal wages will:

Accepted Answer

A)  fall by 1%.
B)  rise by 4%.
C)  rise by 5%.
D)  fall by 5%.

Question 5

What are 'menu costs'?

Accepted Answer

A)  The full list of a firm's costs of production.
B)  The costs to a firm of changing prices.
C)  The cost to a household of borrowing money when there is deflation.
D)  The opportunity cost of dining in a restaurant instead of at home.

Question 6

Looking at the following table, what is the rate of growth of the average price level from 2016 to 2018?

Accepted Answer

A)  1.52%
B)  2%
C)  3.5%
D)  4.76%

Question 7

Inflation that is ________ than what is expected benefits ________ and hurts ________.

Accepted Answer

A)  less; lenders; borrowers
B)  less; borrowers; lenders
C)  greater; lenders; borrowers
D)  greater; lenders; no-one

Question 8

If the anticipated rate of inflation is 3% but the subsequent actual rate of inflation is 5%, the likely outcome will be that the purchasing power of money will:

Accepted Answer

A)  fall and lenders will benefit.
B)  increase and borrowers will benefit.
C)  fall and borrowers will benefit.
D)  increase and lenders will benefit.

Question 9

Explain how the CPI is constructed, and discuss any weaknesses with this measurement technique.
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_____________________________________________________________________________________________

Accepted Answer

The Australian Bureau of Statistics (ABS...

Question 10

Explain how lowering inflation acts like a tax cut for investors and illustrate this using an example.
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_____________________________________________________________________________________________

Accepted Answer

When inflation increases, so does the no...

Question 11

Looking at the following table, real wages ________ from 2016 to 2017 and real wages ________ from 2017 to 2018.

Accepted Answer

A)  rose; rose
B)  rose; fell
C)  fell; fell
D)  fell; rose

Question 12

Describe how inflation can be costly even if it is anticipated.
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Accepted Answer

First, there will be redistribution as s...

Question 13

Suppose you obtain a fixed interest rate mortgage during a period of relatively high inflation. During the next 10 years, inflation falls. Are you a winner or a loser due to inflation? Explain why.
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Accepted Answer

You would be a loser under this scenario...

Question 14

Which of the following statements is false?

Accepted Answer

A)  Whether you gain or lose during a period of inflation depends on whether your income rises faster or slower than the prices of things you buy.
B)  Inflation that is higher than expected benefits debtors and inflation that is lower than expected benefits creditors.
C)  When unanticipated inflation occurs regularly, the degree of risk associated with investments in the economy increases.
D)  There are no costs or losses associated with inflation when it is fully anticipated.

Question 15

Explain why you would rather be a borrower during a period of unexpected rising inflation and a lender during a period of unexpected declining inflation.
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Accepted Answer

The nominal interest rate includes a cha...

Question 16

If nominal wages rise slower than the price level, then real wages have ________ and the purchasing power of income has ________.

Accepted Answer

A)  fallen; fallen
B)  fallen; risen
C)  risen; risen
D)  risen; fallen

Question 17

Describe how a lender can lose from inflation if the inflation is unanticipated and the loan is a fixed-interest-rate loan. How would a variable-interest-rate loan (one that adjusts over the contract period)eliminate these losses?
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Accepted Answer

Lenders require compensation for inflati...

Question 18

Suppose an economy has only three goods, and the typical family purchases the amounts given in the following table. If 2012 is the base year, then what is the CPI for 2017?

Accepted Answer

A)  89
B)  125
C)  212
D)  163

Question 19

Looking at the following table, real average hourly earnings equals ________ in 2016.

Accepted Answer

A)  $9.52
B)  $9.00
C)  $10.00
D)  $12.00

Question 20

If the nominal rate of interest is 6% and the inflation rate is 3%, what is the real rate of interest?

Accepted Answer

A)  -9.5%
B)  -305%
C)  1.5%
D)  3%

Exam 8: Inflation

Describe how inflation can be costly even if it is anticipated. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Correct AnswerverifiedFirst, there will be redistribution as s...View AnswerShow Answer

Looking at the following table, real average hourly earnings equals ________ in 2016.

Correct AnswerverifiedShow Answer

Looking at the following table, what is the rate of growth of the average price level from 2016 to 2018?

Correct AnswerverifiedShow Answer

Explain how lowering inflation acts like a tax cut for investors and illustrate this using an example. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Correct AnswerverifiedWhen inflation increases, so does the no...View AnswerShow Answer

Looking at the following table, real wages ________ from 2016 to 2017 and real wages ________ from 2017 to 2018.

Correct AnswerverifiedShow Answer

Inflation that is ________ than what is expected benefits ________ and hurts ________.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe nominal interest rate includes a cha...View AnswerShow Answer

Correct AnswerverifiedYou would be a loser under this scenario...View AnswerShow Answer

If the anticipated rate of inflation is 3% but the subsequent actual rate of inflation is 5%, the likely outcome will be that the purchasing power of money will:

Correct AnswerverifiedShow Answer

If inflation is completely anticipated:

Correct AnswerverifiedShow Answer

If the anticipated rate of inflation is 5% and workers agree to a wage increase of 4%, if the anticipated rate occurs, then nominal wages will:

Correct AnswerverifiedShow Answer

Explain how the CPI is constructed, and discuss any weaknesses with this measurement technique. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Correct AnswerverifiedThe Australian Bureau of Statistics (ABS...View AnswerShow Answer

What are 'menu costs'?

Correct AnswerverifiedShow Answer

Suppose an economy has only three goods, and the typical family purchases the amounts given in the following table. If 2012 is the base year, then what is the CPI for 2017?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThree examples of price indices are the ...View AnswerShow Answer

If the nominal rate of interest is 6% and the inflation rate is 3%, what is the real rate of interest?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedLenders require compensation for inflati...View AnswerShow Answer

Which of the following statements is false?

Correct AnswerverifiedShow Answer

In 1986, an Apple IIe computer with 65 kilobytes of memory cost around $1 500. Today, a $1 500 iMac computer (also made by Apple) comes with 8 gigabytes of memory. This illustrates the potential for what kind of bias in CPI calculations?

Correct AnswerverifiedShow Answer

If nominal wages rise slower than the price level, then real wages have ________ and the purchasing power of income has ________.

Correct AnswerverifiedShow Answer

Describe how inflation can be costly even if it is anticipated. _ _

Correct Answer
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First, there will be redistribution as s...
View Answer

Correct Answer
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Correct Answer
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Explain how lowering inflation acts like a tax cut for investors and illustrate this using an example. _ _

Correct Answer
verified
When inflation increases, so does the no...
View Answer

Looking at the following table, real wages from 2016 to 2017 and real wages from 2017 to 2018.

Correct Answer
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Inflation that is than what is expected benefits and hurts .

Correct Answer
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Correct Answer
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The nominal interest rate includes a cha...
View Answer

Correct Answer
verified
You would be a loser under this scenario...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Explain how the CPI is constructed, and discuss any weaknesses with this measurement technique. _ _

Correct Answer
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The Australian Bureau of Statistics (ABS...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Three examples of price indices are the ...
View Answer

Correct Answer
verified

Correct Answer
verified
Lenders require compensation for inflati...
View Answer

Correct Answer
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Correct Answer
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If nominal wages rise slower than the price level, then real wages have and the purchasing power of income has .

Correct Answer
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