Chapter 10

When we want to measure wage inflation in the labor market, we use the: A. Employment Cost Index B. Consumer Price Index C. Employment Price Index D. Product Price Index

A. Employment Cost Index

An economics professor is discussing a measure of inflation over time based on a basket of goods comprised of all the components of GDP. Which measure is it? A. GDP Deflator B. GDP Price Index C. Consumer Price Index D. Consumer GDP

A. GDP Deflator

The economy of Lower Slobovia experienced deflation in 2001, with a decrease in the price level of 5 percent.If the GDP deflator was 1 in January 1, 2001, the index at the end of 2001 is A. .95 B. 2002 C. 1 D. 1.05 E. the answer cannot be determined from the data.

A. .95

Which of the following is the name used to describe the price index that consists of intermediate goods and finished goods? A. Producer Price Index B. Consumer Price Index C. Employment Cost Index D. Processing Price Index

A. Producer Price Index

The percentage change in the price level from one time period to the next, whether the price level is measured in terms of money or as a price index, will be the ____________. A. inflation rate B. producer price Index C. price index rate D. consumer price index

A. inflation rate

A major economic cost of inflation, assuming all prices rise by the same proportion, is that A. it is costly to change prices, and inflation taxes money holdings. B. it requires more money to pay back loans. C. wages rise faster than the price of goods, making labor too costly. D. prices rise by more than wages, reducing real wages. E. interest rates don't adjust for inflation, since all we see is the nominal rate.

A. it is costly to change prices, and inflation taxes money holdings.

An increase in inflation causes A. lenders to receive repayments of money valued less than what they lent it for. B. real wages to increase C. borrowers to have to pay back money of greater real value than what they borrowed. D. the value of money to increase

A. lenders to receive repayments of money valued less than what they lent it for.

The ____________ is the nominal interest rate minus the rate of inflation. A. real interest rate B. nominally adjusted C. real GDP D. annualized interest rate

A. real interest rate

When a price index moves from 107 to 110, the rate of inflation is: A. 97% B. 2.8% C. 97.2% D. 3%

B. 2.8%

If the real interest rate is 8 percent and there is a deflation rate of 4 percent, what is the nominal interest rate? A. 2 percent B. 4 percent C. 8 percent D. 1/2 percent

B. 4 percent

What term is used to describe a hypothetical group of different items, with specified quantities of each one, used as a basis for calculating how the price level changes over time? A. Real value B. Basket of goods and services C. Nominal value D. Index number

B. Basket of goods and services

The effects of inflation are seen in: A. wages and income levels only B. goods, services, wages and income levels C. goods and services only D. services and wages only

B. goods, services, wages and income levels

The effect of substitution bias is that the rise in the price of a fixed basket of goods over time tends to ____________ the rise in a consumer's true cost of living, because it doesn't take into account that the person can substitute between goods according to changes in their relative prices. A. stabilize B. overstate C. understate D. reduce

B. overstate

Alex wants to measure the nominal 1998 GDP of $993 billion in 2008 dollars. From the data he gathered, he knows the deflator for 1998 is 30 and for 2008, it is 74, and that real interest in those years was 6.23% and 3.21% respectively. If he avoids making a misleading calculation, what will the value be? A. $430 billion B. $2,063 billion C. $835 billion D. $2,449 billion

D. $2,449 billion

An analyst needs to adjust the nominal GDP for the years 2000 and 2010 into real terms to conclude his comparison analysis. The nominal GDP in 2000 was $672 billion and $1,690 billion for 2010; the real interest rate was 6.79% in 2000 and 3.71% in 2010; the 2000 deflator was 24 and 51 in 2010. What is the real gain? A. 151.48% B. 38.58% C. 70.61% D. 18.34%

D. 18.34%

The ____________ is based on the prices of merchandise that are exported or imported. A. Foreign Price Index B. International Price Index C. Producer Price Index D. International Product Index

D. International Product Index

Much of the oil consumed in the United States is imported. When the price of oil rises and the price of other goods do not fall: A. Because oil is an import and not produced in the United States, neither the consumer price index nor the GDP are affected. B. The GDP deflator rises by more than the consumer price index. C. Both the GDP deflator and the consumer price index decrease by the same amount. D. The consumer price index rises by more than does the GDP deflator.

D. The consumer price index rises by more than does the GDP deflator.

Which of the following is the most accurate statement about the relationship between the nominal interest rate and the real interest rate? A. The real interest rate is the nominal interest rate divided by the rate of inflation. B. The real interest rate is the nominal interest rate times the rate of inflation. C. The real interest rate is the nominal interest rate plus the rate of inflation. D. The real interest rate is the nominal interest rate minus the rate of inflation.

D. The real interest rate is the nominal interest rate minus the rate of inflation.

Another term used to describe negative inflation is: A. counter inflation B. GDP deflator C. hyperinflation D. deflation

D. deflation

Two factors that complicate the calculation of the inflation rate are: A. consumer behavior bias and producer behavior bias B. complementarity and preferential bias C. complimentary product bias and old product bias D. substitution and quality/new product bias

D. substitution and quality/new product bias