Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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) All of the above

Question 3

Exhibit 13-2 Consumer Price Index
 
-As shown in Exhibit 13-2,the rate of inflation for Year 3 is:

Accepted Answer

A)   5 percent.
B)   10 percent.
C)   20 percent.
D)   25 percent.E) All of the above
F) A) and B)

Question 4

Cost-push inflation is caused by too much money chasing too few goods.

Accepted Answer

A) True 
 B)False

Question 5

If consumers reduce the purchase of goods whose relative prices rise (substitution bias),the consumer price index (CPI)will tend to have an upward bias over time (overstates inflation).

Accepted Answer

A) True 
 B)False

Question 6

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

Question 7

Inflation:

Accepted Answer

A)   reduces the cost-of-living of the typical worker.
B)   is measured by changes in the cost of a typical market basket of goods between time periods.
C)   causes the purchasing power of a dollar to rise.
D)   has no effect on real income.E) A) and B)
F) A) and C)

Question 8

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) B) and E)
G) B) and C)

Question 9

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.E) None of the above
F) B) and C)

Question 10

A consumer price index of 110 for a given year indicates that prices in that year are 10 percent higher than prices in the base year.

Accepted Answer

A) True 
 B)False

Question 11

A dramatic and sustained increase in oil prices would most likely:

Accepted Answer

A)   increase demand-pull inflation.
B)   decrease demand-pull inflation.
C)   increase cost-push inflation.
D)   decrease cost-push inflation.E) A) and D)
F) A) and C)

Question 12

Demand-pull inflation occurs:

Accepted Answer

A)   at or close to full employment.
B)   because of excess total spending.
C)   when "too much money is chasing too few goods."
D)   all of the above.E) A) and B)
F) C) and D)

Question 13

If the inflation rate exceeds the nominal rate of interest,

Accepted Answer

A)   the real interest rate is negative.
B)   lenders lose.
C)   savers lose.
D)   all of the above.E) B) and C)
F) None of the above

Question 14

Demand-pull inflation occurs during a period of time in which total spending is increasing less than total output (GDP)is increasing.

Accepted Answer

A) True 
 B)False

Question 15

In which of the following years was inflation in the United States the highest?

Accepted Answer

A)   1960.
B)   1970.
C)   1980.
D)   1990.
E)   2007.F) A) and B)
G) D) and E)

Question 16

Exhibit 13-1 Consumer Price Index
 
-As shown in Exhibit 13-1,the rate of inflation for Year 2 is:

Accepted Answer

A)   5 percent.
B)   10 percent.
C)   20 percent.
D)   25 percent.E) None of the above
F) A) and B)

Question 17

Suppose that the consumer price index (CPI) was 160 in Year X and 166 in Year Y,inflation during Year Y was approximately:

Accepted Answer

A)   zero; prices were stable.
B)   3.8 percent.
C)   6 percent.
D)   66 percent.E) A) and D)
F) C) and D)

Question 18

Disinflation and deflation mean a decrease in the average price level.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is true about inflation?

Accepted Answer

A)   Inflation promotes social harmony by uniting people against the government.
B)   Inflation is more damaging if it is anticipated.
C)   Accurate anticipation of inflation is possible for everyone who is well informed about economic events.
D)   Those who lend money at a rate below the rate of inflation suffer economic losses.
E)   If people accurately anticipate inflation, their actions will prevent it.F) None of the above
G) C) and D)

Question 20

Which of the following is true of inflation?

Accepted Answer

A)   It is an increase in the general price level of goods and services.
B)   The purchasing power of money increases as the result of inflation.
C)   Inflation is similar to interest payments on future money income, such as pensions and receipts from outstanding loans.
D)   Inflation has no effect on real income.E) A) and B)
F) C) and D)

Exam 13: Inflation

If the inflation rate exceeds the nominal rate of interest,

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Disinflation and deflation mean a decrease in the average price level.

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Exhibit 13-2 Consumer Price Index -As shown in Exhibit 13-2,the rate of inflation for Year 3 is:

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Those hurt by inflation include:

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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:

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Which of the following is true of inflation?

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Exhibit 13-1 Consumer Price Index -As shown in Exhibit 13-1,the rate of inflation for Year 2 is:

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A consumer price index of 110 for a given year indicates that prices in that year are 10 percent higher than prices in the base year.

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If consumers reduce the purchase of goods whose relative prices rise (substitution bias),the consumer price index (CPI)will tend to have an upward bias over time (overstates inflation).

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Cost-push inflation is caused by too much money chasing too few goods.

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Demand-pull inflation occurs during a period of time in which total spending is increasing less than total output (GDP)is increasing.

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A dramatic and sustained increase in oil prices would most likely:

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Suppose that the consumer price index (CPI) was 160 in Year X and 166 in Year Y,inflation during Year Y was approximately:

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A worker would be hurt least by inflation when the:

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Which of the following is true about inflation?

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Inflation:

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Demand-pull inflation occurs:

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

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In which of the following years was inflation in the United States the highest?

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

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