Chapter 31

Inflation hurts individuals because: A. higher prices reduce the quantities demanded by consumers. B. it affects the ability of market prices to send signals about the value of resources. C. they can perfectly see the increases in prices. D. it raises all prices in the economy.

B. it affects the ability of market prices to send signals about the value of resources.

Negative real rates of interest tend to: A. exist only in poor countries. B. reduce economic growth. C. have no impact on economic growth. D. increase economic growth.

B. reduce economic growth.

Table: Consumer Price Index Reference: Ref 12-1 (Table: Consumer Price Index) Refer to the CPI values in the table for the years 2005 to 2010. What was the approximate inflation rate over the period 2009 to 2010? A. 1.68 percent B. 18.10 percent C. 21.81 percent D. 3.60 percent

A. 1.68 percent

Suppose a nation's inflation rate is 5.8 percent from Year 1 to Year 2. If the CPI in Year 2 is 200, what was the CPI in Year 1? A. 189 B. 180 C. 190 D. 208

A. 189

A major problem with inflation is that after it starts A. it is difficult to stop without experiencing high unemployment. B. it can never be stopped with any government policy. C. it always stops quickly because the economy always corrects itself naturally. D. it is easy to stop as long as it is fully expected.

A. it is difficult to stop without experiencing high unemployment.

You earned $10 an hour in 2005, when the CPI was 90, and earn $12 an hour today, when the CPI is 120. As compared to 2005, in 2010 your real wage rate is ______ . A. lower B. stayed the same C. not enough information. D. higher

A. lower

Which of the three price indexes measures the average price level of the largest total number of goods? A. the GDP deflator B. Each price index accomplishes the same task. C. the consumer price index D. the producer price index

A. the GDP deflator

For a given nominal interest rate, an increase in the inflation rate will cause real interest rates to A. become unpredictable. B. decrease. C. remain relatively constant. D. increase.

B. decrease.

When the price of a good in Russia increases from 20 rubles to 20 million rubles in a single year, the nation is experiencing A. deflation. B. hyperinflation. C. high disinflation. D. falling GDP per capita.

B. hyperinflation.

Inflation generally causes the taxes paid by individuals and business firms to A. become less of a burden. B. increase. C. remain relatively constant. D. decrease.

B. increase.

Compared to other countries, inflation in the United States has been A. relatively high. B. relatively low. C. extremely unpredictable. D. about the same.

B. relatively low.

If the CPI was 100 in 2000 and 120 in 2010 and the price of a gallon of milk was $4.00 in 2000 and $4.80 in 2010, then the real of price milk is A. more than $4.80. B. same as $4.80. C. less than $4.80. D. unknown without further information.

B. same as $4.80.

The actual real rate of return for lenders is equal to A. the nominal rate of return plus the inflation rate. B. the nominal rate of return minus the inflation rate. C. the nominal rate of return divided by the inflation rate times 100. D. the nominal rate of return times the inflation rate.

B. the nominal rate of return minus the inflation rate.

What do we call an increase in the average level of prices in an economy? A. deflation B. stagflation C. inflation D. recession

C. inflation

When changes in nominal prices are confused with changes in real prices, people experience A. cyclical price confusion. B. inflationary delusion. C. money illusion. D. consumer bias.

C. money illusion.

Table: Consumer Price Index Year Reference: Ref 12-1 (Table: Consumer Price Index) Refer to the CPI values in the table for the years 2005 to 2010. In which year was the inflation rate the highest? A. 2006 B. 2009 C. 2007 D. 2008

D. 2008

Which of the following statements highlights the difference between the CPI (consumer price index) and the GDP deflator? A. The CPI measures the average prices of inputs in the production process, whereas the GDP deflator measures the average prices of goods purchased by consumers. B. The CPI measures the average prices of retail goods, whereas the GDP deflator measures the average prices of wholesale goods. C. The CPI measures the average prices of all final goods consumed by consumers, whereas the GDP deflator measures the average prices of all inputs used in the economy. D. The CPI measures the average prices of typical goods consumed by consumers, whereas the GDP deflator measures the average prices of all goods consumed by all agents in the economy.

D. The CPI measures the average prices of typical goods consumed by consumers, whereas the GDP deflator measures the average prices of all goods consumed by all agents in the economy.

True or False: In times of rising prices, lenders benefit at the expense of borrowers.

False

True or False: Negative real interest rates among countries result when they print too little money.

False

True or False: Monetizing the debt occurs when the government pays off its debts by printing money.

True