Economics - Unit 4

If the CPI in year 1 is 120 and 150 in Year 2, then the rate of inflation from Year 1 to Year 2 is: a. 20% b. 100% c. 10% d. 50% e. 25%

e. 25%

Which of the following price indices is commonly used to measure the cost of living? a. Wholesale price index b. Human development index c. GDP Deflator d. Producer price index e. Consumer price index

e. Consumer price index

When hyper-infaltion forces George to change the price stickers on the boots in his bookstore very frequently to keep up with the aggregate price level, economists say George is experiencing: a. Fisher Effect b. Debt Deflation c. Unit-of-Account Cost d. Shoe-Leather Costs e. Menu Costs

e. Menu Costs

High rates of inflation often result in people spending inordinate amounts of time trying to make transactions and finding ways to keep the real value of their money from decreasing. This is an example of ___________________ costs. a. Menu b. Unit of Account c. Efficiency Wage d. Productivity e. Shoe Leather

e. Shoe Leather

Menu costs refer to the increased cost of a. Changing listed prices b. Dining out when inflation increases c. Food in a time of inflation d. The minimum wage e. Bartering during severe inflationary periods

a. Changing listed prices

The _____________ is the most widely used measure of inflation in these United States a. Consumer Price Index b. GDP Deflator c. Growth Rate of Real GDP d. Producer Price Index e. National Income Account

a. Consumer Price Index

Unanticipated inflation: a. Helps borrowers and hurts lenders b. Causes people to hold more cash c. Causes nominal interest rates to decrease d. Helps those on fixed incomes e. Hurts borrowers and helps lenders

a. Helps borrowers and hurts lenders

Inflation does not reduce purchasing power if: a. It remains under 20% per year b. It causes an increase in nominal wages equivalent to the rate of inflation c. It remains under 10% per year d. The Federal Reserve increases the money supply enough to offset it e. Prices of essential products, such as food and gasoline, do not increase too much

b. It causes an increase in nominal wages equivalent to the rate of inflation

Unit of Account costs refer to the problem associated with high inflation rates that: a. Cause people to expend extra effort to reduce their holdings of money b. Make money a less reliable unit of measurement. c. Result in increased costs associated with unnecessary changes in the list price of items d. Result in decreased costs associated with unnecessary changes in the list price of items e. Decrease the costs associated with holding less money.

b. Make money a less reliable unit of measurement.

The aggregate price level is: a. The average price of commodities b. The overall level of prices in the economy c. The overall level of wages in the economy d. The average price of shares on the stock market e. The average rate of inflation

b. The overall level of prices in the economy

If the CPI changes from 120 to 125 between December 2014 and December 2015, the: a. Deflation rate for 2015 is -4.2% b. Inflation rate for 2008 is 10% c. Inflation rate for 2015 is 4.2% d. Inflation rate for 2015 is 5% e. Deflation rate for 2015 is 5%

c. Inflation rate for 2015 is 4.2%

The inflation or deflation rate is: a. Computed by dividing the old price index number by the new price index number b. The difference between the initial price index number and the new price index number c. The change in a price index divided by the new index number d. The rate of change in Real GDP from year to year e. The change in a price index divided by the initial value of the index

c. The change in a price index divided by the new index number

Inflation can be measured by: a. The absolute change in the GDP deflator b. The percentage change in nominal GDP c. The percentage change in the CPI d. The percentage change in Real GDP e. The absolute change in the CPI

c. The percentage change in the CPI

Suppose the real interest rate is 2.1% and the nominal interest rate is 5.4%. the expected inflation rate: a. -3.3% b. 7.5% c. 2.1% d. 3.3% e. 5.4%

d. 3.3%

Suppose the nominal interest rate is 7% and the expected inlfation rate is 3%. Thge real interest rate is: a. -4% b. 3% c. 5% d. 4% e. 10%

d. 4%

The CPI reflects the: a. Level of prices for intermediate goods and services purchased by business b. Prices of all goods and services computed from the ratio of Nominal GDP to Real GDP c. Level of prices for raw materials d. Changes in the prices of goods and services typically purchased by consumers e. Average price of goods and services purchased by consumers

d. Changes in the prices of goods and services typically purchased by consumers

The purpose of indexing Social Security payments to the CPI is to: a. Increase government tax revenue b. Increase corporate profits c. Avoid the privatization of Social Security d. Maintain the purchasing power of retirees e. Justify continued government funding of the Bureau of Labor Statistics

d. Maintain the purchasing power of retirees

The threat of future inflation: a. Makes people reluctant to borrow money for long periods b. Increases the value of money paid back in the future c. Makes people eager to loan money for long periods d. Makes people reluctant to loan money for long periods e. Has no effect on loaning money

d. Makes people reluctant to loan money for long periods