Question 1

Assume that the real rate of interest is 5 percent and a lender charges a nominal interest rate of 15 percent.If a borrower expects that the rate of inflation next year will be 10 percent and the actual rate of inflation next year is 10 percent,:

Accepted Answer

A)   the lender benefits from inflation, while the borrower loses from inflation.
B)   the borrower benefits from inflation, while the lender loses from inflation.
C)   neither the borrower nor the lender benefits from inflation.
D)   both the borrower and the lender lose from inflation.

Question 2

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 3

Inflation is an increase in:

Accepted Answer

A)   prices of all products in the economy.
B)   homes, autos and basic resources.
C)   the general price level of products.
D)   none of the above.

Question 4

The real interest rate can be expressed as the:

Accepted Answer

A)   nominal interest rate minus the real interest rate.
B)   inflation rate minus the nominal interest rate.
C)   nominal interest rate minus the inflation rate.
D)   nominal interest rate plus the inflation rate.

Question 5

The real interest rate can be negative.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Suppose the consumer price index (CPI) stands at 250 this year.If the inflation rate is 10 percent,then next year's CPI will equal:

Accepted Answer

A)   250.
B)   260.
C)   275.
D)   500.

Question 8

People with fixed incomes fare best in an inflationary period.

Accepted Answer

A) True 
 B)False

Question 9

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 10

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)   no change in the distribution of wealth between lenders and borrowers.
B)   a net gain in purchasing power for lenders relative to borrowers.
C)   a redistribution of wealth from borrowers to lenders.
D)   a redistribution of wealth from lenders to borrowers.

Question 11

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 12

Suppose you received a 5 percent increase in your nominal wage.Over the year,inflation ran about 2 percent.Which of the following is true?

Accepted Answer

A)   Your real wage increased.
B)   Your nominal wage decreased.
C)   Both your nominal and real wages decreased.
D)   Although your nominal wage rose, your real wage decreased.

Question 13

Deflation refers to a:

Accepted Answer

A)   decreasing relative prices.
B)   decreasing price level.
C)   slowing down of the rate of inflation.
D)   federal government policy of running budget surpluses.

Question 14

Exhibit 13-2 Consumer Price Index
 
-As shown in Exhibit 13-2,the rate of inflation for Year 5 is:

Accepted Answer

A)   5 percent
B)   10 percent.
C)   20 percent.
D)   25 percent.

Question 15

A measure comparing the prices of consumer goods and services that a household typically purchases to the prices of those goods and services purchased in a base year is

Accepted Answer

A)   the GDP deflator.
B)   the consumer price index.
C)   the price level.
D)   inflation.
E)   the base measure.

Question 16

Real income in Year X is equal to:

Accepted Answer

A)     Year X nominal income  Year X real GDP ×100\frac { 	ext { Year X nominal income } } { 	ext { Year X real GDP } } 	imes 100 Year X real GDP  Year X nominal income ​×100 
B)     Year X nominal income  Year X real output ×100\frac { 	ext { Year X nominal income } } { 	ext { Year X real output } } 	imes 100 Year X real output  Year X nominal income ​×100 
C)   
D)     Year X nominal income × CPI 	ext { Year } X 	ext { nominal income } 	imes 	ext { CPI } Year X nominal income × CPI

Question 17

Assume that the real rate of interest is 5 percent and a lender charges a nominal interest rate of 15 percent.If a borrower expects that the rate of inflation next year will be 10 percent and the actual rate of inflation next year is 12 percent:

Accepted Answer

A)   neither the borrower nor the lender benefits from inflation.
B)   both the borrower and the lender lose from inflation.
C)   the borrower benefits from inflation, while the lender loses from inflation.
D)   the lender benefits from inflation, while the borrower loses from inflation.

Question 18

If the consumer price index (CPI) in Year 1 was 200 and the CPI in Year 2 was 215,the rate of inflation was:

Accepted Answer

A)   215 percent.
B)   15 percent.
C)   5 percent.
D)   7.5 percent.
E)   8 percent.

Question 19

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 20

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 the above.

Exam 13: Inflation

If the consumer price index (CPI) in Year 1 was 200 and the CPI in Year 2 was 215,the rate of inflation was:

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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.

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Assume that the real rate of interest is 5 percent and a lender charges a nominal interest rate of 15 percent.If a borrower expects that the rate of inflation next year will be 10 percent and the actual rate of inflation next year is 12 percent:

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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:

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Deflation refers to a:

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Suppose you received a 5 percent increase in your nominal wage.Over the year,inflation ran about 2 percent.Which of the following is true?

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The real interest rate can be expressed as the:

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Exhibit 13-2 Consumer Price Index -As shown in Exhibit 13-2,the rate of inflation for Year 5 is:

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Real income in Year X is equal to:

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The real interest rate can be negative.

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

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Assume that the real rate of interest is 5 percent and a lender charges a nominal interest rate of 15 percent.If a borrower expects that the rate of inflation next year will be 10 percent and the actual rate of inflation next year is 10 percent,:

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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:

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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:

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Suppose the consumer price index (CPI) stands at 250 this year.If the inflation rate is 10 percent,then next year's CPI will equal:

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A measure comparing the prices of consumer goods and services that a household typically purchases to the prices of those goods and services purchased in a base year is

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Inflation is an increase in:

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People with fixed incomes fare best in an inflationary period.

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Cost-push inflation is due to:

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Which of the following can create demand-pull inflation?

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