Chapter 31 Problem Set

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

B. inflation

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. not enough information. B. lower C. higher D. stayed the same

B. lower

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

A. 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.

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. same as $4.80. B. unknown without further information. C. less than $4.80. D. more than $4.80

A. same as $4.80.

Table: Consumer Price Index Year CPI Value 2005 195.3 2006 201.6 2007 207.3 2008 215.3 2009 214.5 2010 218.1 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? Selected Answer: A. 18.10 percent B. 1.68 percent C. 21.81 percent D. 3.60 percent

B. 1.68 percent

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. high disinflation. B. hyperinflation. C. deflation. D. falling GDP per capita.

B. hyperinflation.

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

B. the GDP deflator

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. 190 B. 208 C. 189 D. 180

C. 189

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

C. decrease.

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

C. increase.

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

C. money illusion

Table: Consumer Price Index Year CPI Value 2005 195.3 2006 201.6 2007 207.3 2008 215.3 2009 214.5 2010 218.1 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. 2007 C. 2009 D. 2008

D. 2008

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

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

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

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

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

D. reduce economic growth

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

D. relatively low

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

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

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

False

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

False

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

True