Practice HW 13
A Phillips curve is a curve which shows that inflation tends to increase as unemployment increases.
False
An inflation that results from an initial increase in business costs is called wage pull inflation.
False
Between 1970 and 1979, the annual inflation rate never exceeded 10% during any year.
False
Between 1980 and 1989, the annual inflation rate never exceeded 10% during any year.
False
Deflation refers to a period when the inflation rate is positive, but decreasing.
False
Disinflation refers to a period when the inflation rate is negative.
False
During each year from 1980 to 1989, the annual inflation rate exceeded 20% in the US.
False
If the interest rate is 8% and the inflation rate is 5%, then the real rate of interest is 13%.
False
Most economists believe that changes in the CPI tend to underestimate the true rate of inflation.
False
Nominal GDP measures the value of output in fixed based year prices, while real GDP measures the value of output in prices which exist during the year being examined.
False
P1 P2 P3 Apples $1.20 $1.30 $1.35 Milk $2.50 $3.00 $3.25 Movies $5.00 $6.00 $7.00 The CPI during the base year is 1.00.
False
P1 P2 P3 Apples $1.20 $1.30 $1.35 Milk $2.50 $3.00 $3.25 Movies $5.00 $6.00 $7.00 Total expenditure in the base year is $8.70.
False
P1 P2 P3 Apples $1.20 $1.30 $1.35 Milk $2.50 $3.00 $3.25 Movies $5.00 $6.00 $7.00 Using base year quantities, total expenditure in year 2 is $11.60.
False
People living on fixed incomes tend to gain during periods of inflation.
False
Quality change bias tends to make the GDP deflator underestimate the true inflation rate.
False
Since the 1920s, there has never been a period of hyperinflation in any country in the world.
False
Suppose the interest rate is 6% and the inflation rate is 5%. The real rate of interest is 1.20%.
False
Suppose we use the prime rate to measure interest rates. Suppose the prime rate is 5% and the inflation rate is 5%. The real rate of interest is 10%.
False
Suppose we use the prime rate to measure interest rates. Suppose the prime rate is 6% and the inflation rate is 8%. The real rate of interest is 2%.
False
The Customer Payment Index is the name given to the inflation index that measures the average level of prices of goods and services that a typical urban family buys.
False
The GDP deflator measures changes in the prices of consumer goods only.
False
The GDP inflator is the name given to the inflation index that measures the average level of prices of all the goods and services that are included in GDP.
False
A major cost of high unanticipated inflation is that it causes extreme uncertainty which discourages long term investment.
True
An inflation that results from an initial increase in aggregate demand is called demand pull inflation.
True
An unanticipated inflation will tend to help debtors.
True
Between 1990 and 1999, the annual inflation rate never exceeded 10% during any year.
True
By the "Rule of 72", if prices increase about 6% per year, it will take approximately 12 years for prices to double.
True
Cost push inflation occurred during the mid 70s when the OPEC countries raised the price of oil fourfold.
True
Hyperinflation is always accompanied by a huge increase in the supply of money.
True
Hyperinflation refers to very rapid increases in the overall price level.
True
Hyperinflation usually arises during periods of war or political upheaval when government tax revenues fall far short of government expenditures, so the government resorts to printing money to fill the gap.
True
In every recession since 1950, the inflation rate has been lower during the 12 months AFTER the recession ended than during the 12 months BEFORE the recession began.
True
Increased uncertainty about inflation makes investors reluctant to make long term commitments.
True
It is possible that nominal GDP can increase and at the same time real GDP can decrease.
True
It is possible that real GDP can increase and at the same time real GDP per capita can decrease.
True
Most economists argue that increases in the Consumer Price Index tend to overstate true increases in the cost of living.
True
P1 P2 P3 Apples $1.20 $1.30 $1.35 Milk $2.50 $3.00 $3.25 Movies $5.00 $6.00 $7.00 The CPI during year 1 is 117.74.
True
P1 P2 P3 Apples $1.20 $1.30 $1.35 Milk $2.50 $3.00 $3.25 Movies $5.00 $6.00 $7.00 The CPI during year 2 is 132.66.
True
P1 P2 P3 Apples $1.20 $1.30 $1.35 Milk $2.50 $3.00 $3.25 Movies $5.00 $6.00 $7.00 The inflation rate between the base year and year 1 is 17.74%.
True
P1 P2 P3 Apples $1.20 $1.30 $1.35 Milk $2.50 $3.00 $3.25 Movies $5.00 $6.00 $7.00 Using base year quantities, total expenditure in year 1 is $146.00.
True
P1 P2 P3 Chicken $2.20 $3.30 $3.35 Milk $2.50 $3.00 $3.25 Shirts $25.00 $36.00 $37.00 The CPI during the base year is 100.
True
P1 P2 P3 Chicken $2.20 $3.30 $3.35 Milk $2.50 $3.00 $3.25 Shirts $25.00 $36.00 $37.00 The CPI during year 1 is approximately 142.88.
True
P1 P2 P3 Chicken $2.20 $3.30 $3.35 Milk $2.50 $3.00 $3.25 Shirts $25.00 $36.00 $37.00 The CPI during year 2 is approximately 147.14.
True
P1 P2 P3 Chicken $2.20 $3.30 $3.35 Milk $2.50 $3.00 $3.25 Shirts $25.00 $36.00 $37.00 The inflation rate between the base year and year 1 is approximately 42.88%.
True
P1 P2 P3 Chicken $2.20 $3.30 $3.35 Milk $2.50 $3.00 $3.25 Shirts $25.00 $36.00 $37.00 Total expenditure in the base year is $358.00.
True
P1 P2 P3 Chicken $2.20 $3.30 $3.35 Milk $2.50 $3.00 $3.25 Shirts $25.00 $36.00 $37.00 Using base year quantities, total expenditure in year 1 is $511.50.
True
P1 P2 P3 Chicken $2.20 $3.30 $3.35 Milk $2.50 $3.00 $3.25 Shirts $25.00 $36.00 $37.00 Using base year quantities, total expenditure in year 2 is $526.75.
True
Social security benefits are "indexed" to reduce the loss of buying power caused by inflation.
True
Some factors which can trigger demand pull inflation are an increase in government expenditures, an increase in the money supply, a tax cut, or an increase in exports.
True
Stagflation refers to a period of inflation along with a recession or high unemployment.
True
Stagflation refers to a period of inflation during periods of recession or high unemployment.
True
Suppose that the prices of many new products such as cell phones, iPads, etc. tend to fall after they are introduced and become more popular. Suppose the bureau of Labor Statistics rarely updates its market basket and rarely includes new products in its market basket. Then the Bureau of Labor Statistics will tend to overstate the inflation rate.
True
Suppose that, in fact, consumers make substitutions in their purchases when relative prices change but the Bureau of Labor Statistics maintains using a fixed market basket. Then the BLS will tend to overstate the increase in a household's cost of living.
True
Suppose we use the prime rate to measure interest rates. Suppose the prime rate is 8% and the inflation rate is 5%. The real rate of interest is 3%.
True
The GDP deflator is a broader measure of inflation than the CPI.
True
The producer price index is considered to be a leading indicator of future consumer prices.
True
Two of the main causes of cost-push inflation are an increase in wage rates and an increase in the prices of raw materials.
True
When constructing the Consumer Price Index, the Bureau of Labor Statistics assumes that the market basket is fixed.
True
When high unanticipated inflation occurs, borrowers gain and lenders lose.
True
When prices rise, consumers tend to buy fewer of those products that increase most in price and more of those products that increase least in price (or fall most in price).
True
When the inflation rate is highly variable and unpredictable, the degree of risk associated with business investments tends to increase. Other things being equal, this causes a decrease in investment spending.
True
Whether you gain or lose during a period of inflation depends on whether your income rises faster or slower than the prices of the things you buy.
True