Question 1

What are some criticisms of the CPI as a measure of inflation?

Accepted Answer

The CPI is criticized as a measure of in...

Question 2

Deflation means a decrease in:

Accepted Answer

A)   the rate of inflation.
B)   the prices of all products in the economy.
C)   homes, autos, and basic resources.
D)   the general level of prices in the economy.E) A) and B)
F) A) and C)

Question 3

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.F) All of the above
G) C) and E)

Question 4

A worker would be hurt least by inflation when the:

Accepted Answer

A)   worker anticipates inflation and increases savings at the bank.
B)   worker is protected by a cost-of-living adjustment clause in an employment contract.
C)   price level increases but at a decreasing rate.
D)   worker is protected by fixed annual increases in wages and benefits in an employment contract.E) A) and B)
F) None of the above

Question 5

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.E) A) and D)
F) A) and C)

Question 6

Inflation refers only to rising prices at a given time period.

Accepted Answer

A) True 
 B)False

Question 7

The real interest rate is the annual percentage amount of money that is earned on a sum loaned or deposited in a bank.

Accepted Answer

A) True 
 B)False

Question 8

Exhibit 13-1  Consumer Price Index  As shown in Exhibit 13-1, the rate of inflation for Year 5 is:

Accepted Answer

A)   4.2 percent
B)   5 percent.
C)   20 percent.
D)   25 percent.E) A) and D)
F) A) and C)

Question 9

Which of the following is correct?

Accepted Answer

A)   People whose nominal incomes rise faster than the rate of inflation gain purchasing power.
B)   Real income equals nominal income divided by the CPI as a decimal.
C)   The percentage change in real income equals the percentage change in nominal income minus the percentage change in CPI.
D)   All of the above.E) C) and D)
F) All of the above

Question 10

Demand-pull inflationary pressure increases as the economy approaches full employment.

Accepted Answer

A) True 
 B)False

Question 11

Exhibit 13-2  Consumer Price Index  As shown in Exhibit 13-2, the rate of inflation for Year 4 is:

Accepted Answer

A)   5 percent.
B)   10 percent.
C)   19 percent.
D)   20 percent.
E)   25 percent.F) A) and D)
G) A) and E)

Question 12

Suppose the price of gasoline rises and consumers cut back on their use of gasoline relative to other consumer goods. This situation would contribute to which bias in the consumer price index?

Accepted Answer

A)   Substitution bias.
B)   Transportation bias.
C)   Quality bias.
D)   Indexing bias.E) A) and B)
F) C) and D)

Question 13

During the period 1980-1986, the U.S. economy experienced disinflation.

Accepted Answer

A) True 
 B)False

Question 14

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 measure by the CP...

Question 15

According to the Bureau of Labor Statistics' survey, which category represents the largest expense for the typical urban family?

Accepted Answer

A)   Housing.
B)   Food and beverages.
C)   Transportation.
D)   Medical care.E) None of the above
F) All of the above

Question 16

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.F) A) and B)
G) C) and E)

Question 17

Inflation psychosis and wage-price spirals are two types of hyperinflation.

Accepted Answer

A) True 
 B)False

Question 18

The consumer price index (CPI) is computed as the ratio of nominal GDP to real GDP.

Accepted Answer

A) True 
 B)False

Question 19

Unlike the GDP deflator, the CPI does not consider goods and services purchased by business and government.

Accepted Answer

A) True 
 B)False

Question 20

A sustained decrease in the price level is known as deflation.

Accepted Answer

A) True 
 B)False

Exam 13: Inflation

According to the Bureau of Labor Statistics' survey, which category represents the largest expense for the typical urban family?

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In periods of high inflation,

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Exhibit 13-2 Consumer Price Index As shown in Exhibit 13-2, the rate of inflation for Year 4 is:

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The real interest rate is the annual percentage amount of money that is earned on a sum loaned or deposited in a bank.

Correct AnswerverifiedShow Answer

Unlike the GDP deflator, the CPI does not consider goods and services purchased by business and government.

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Inflation is defined as an increase in:

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Deflation means a decrease in:

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Inflation refers only to rising prices at a given time period.

Correct AnswerverifiedShow Answer

Suppose the price of gasoline rises and consumers cut back on their use of gasoline relative to other consumer goods. This situation would contribute to which bias in the consumer price index?

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Inflation psychosis and wage-price spirals are two types of hyperinflation.

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Those hurt by inflation include:

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A worker would be hurt least by inflation when the:

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What are some criticisms of the CPI as a measure of inflation?

Correct AnswerverifiedThe CPI is criticized as a measure of in...View AnswerShow Answer

A sustained decrease in the price level is known as deflation.

Correct AnswerverifiedShow Answer

Demand-pull inflationary pressure increases as the economy approaches full employment.

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?

Correct AnswerverifiedInflation is typically measure by the CP...View AnswerShow Answer

The consumer price index (CPI) is computed as the ratio of nominal GDP to real GDP.

Correct AnswerverifiedShow Answer

Exhibit 13-1 Consumer Price Index As shown in Exhibit 13-1, the rate of inflation for Year 5 is:

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

During the period 1980-1986, the U.S. economy experienced disinflation.

Correct AnswerverifiedShow Answer

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The CPI is criticized as a measure of in...
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Inflation is typically measure by the CP...
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