Macro econ ch 7 quiz 1-4

Which of the following is true of the consumer price index (CPI)? D

a. It measures the cost of a basket of producer goods and services over time. b. It measures the cost of a basket of goods a typical producer and consumer is likely to buy at a particular point of time. c. It measures the cost of a range of services a typical producer or consumer is likely to buy at a particular point of time. d. It measures the cost of a market basket of consumer goods and services over time.

Which of the following is true of inflation? C

a. Transaction costs are lower if the inflation rate fluctuates over a period of time. b. Inflation increases confidence in the value of the dollar over the long term. c. Unanticipated inflation creates more problems than anticipated inflation. d. High rates of inflation are always associated with high rates of unemployment in an economy.

Relative price changes: A

a. are important signals for allocating an economy's resources efficiently. b. become constant when an economy is suffering from hyperinflation. c. are completely unaffected by the rate of inflation in an economy. d. describe the exchange rate between a market basket and money.

Inflation: D

a. can be accurately measured by the GDP deflator. b. cannot be accurately measured by the consumer price index. c. increases the purchasing power of a given amount of money. d. decreases the purchasing power of a given amount of money.

The misery index: B

a. is calculated as the sum of the inflation rate and labor force participation rate. b. is the sum of the unemployment rate and inflation rate. c. equals the unemployment rate among unskilled workers in an economy. d. measures the difference between real interest rates and nominal interest rates.

Inflation is unpopular because _____. A

a. it makes financial planning more difficult b. it increases the gestation period of production c. it leads to shortages in an economy d. it results in surplus in an economy

One of the most widely reported measures of inflation is the _____. A

a. consumer price index b. Gini coefficient c. producer price index d. GDP deflator

If inflation is much higher than originally anticipated, _____ are better off and _____ are worse off. A

a. people who borrowed at fixed interest rates; banks that extended loans at fixed interest rates b. people who deposited their savings at fixed interest rates; banks that accepted deposits at fixed interest rates c. retired people living on a fixed income; people who had borrowed fixed interest rate loans d. lenders who extended loans at fixed interest rates; people who borrowed at fixed interest rates

Real interest rate equals the: D

a. ratio of the inflation rate to the nominal interest rate. b. ratio of the actual interest rate to the expected interest rate. c. difference between the actual interest rate and the expected interest rate. d. difference between the nominal interest rate and the inflation rate.

In the market for loanable funds, the equilibrium interest rate is determined by the intersection of: D

a. the downward-sloping supply curve of loanable funds and the vertical demand curve for loanable funds. b. the downward-sloping supply curve for loanable funds and the upward-sloping demand curve for loanable funds. c. the downward-sloping supply curve of loanable funds and the horizontal demand curve for loanable funds. d. the upward-sloping supply curve for loanable funds and the downward-sloping demand curve for loanable funds.

Suppose the nominal interest rate is 3% and the inflation rate is 5%. In this case, _____. B

a. the nominal interest rate earned for lending money will sufficiently cover the loss of spending power caused by inflation b. the nominal interest earned for lending money will not cover the loss of spending power caused by inflation c. the negative real interest rate will not affect either lenders or borrowers d. the positive real interest rate will result in lenders losing their purchasing power

The nominal interest rate and the real interest rate will be the same when: B

a. the rate of inflation is low but positive. b. the rate of inflation is zero. c. the rate of inflation is negative. d. the rate of inflation is high.

If inflation is higher than expected, _____. B

a. the winners are those who agreed to sell at a price that anticipated lowa. the winners are those who agreed to sell at a price that anticipated lower inflation and the losers are those who agreed to pay that price b. the losers are those who agreed to sell at a price that anticipated lower inflation and the winners are those who agreed to pay that price c. the transactions costs are zero d. the transactions costs are negativeer inflation and the losers are

Which of the following correctly describes the relationship between prices and wages? B

a. A decrease in the price level causes workers to demand higher wages, putting an additional downward pressure on prices. b. An increase in nominal wages causes inflation, and inflation causes workers to demand even higher wages in order to keep their real income constant. c. An increase in the price level lowers real wages leading to unemployment, creating a downward pressure on prices. d. An increase in real wages due to a growth in workers' productivity causes inflation, which in turn increases workers' productivity.

_____ cause differences in inflation rates across metropolitan areas in the United States. B

a. Differences in wage rates b. Differences in housing prices c. Differences in the prices of consumer goods d. Differences in the level of federal government spending

Suppose inflation is expected to be 2% next year and an employer and employee agree to a 3% increase in nominal wage. Which of the following will be true in this case? C

a. If the actual rate of inflation is 5%, the employee will gain and the employer will lose. b. If the actual rate of inflation is 5%, both the employer and the employee will lose. c. If the actual rate of inflation is 2%, both the employer and the employee will be satisfied with the wage agreement. d. If the actual rate of inflation is 2%, neither the employer nor the employee will be satisfied with the wage agreement.

Everything else remaining unchanged, demand-pull inflation could arise as a result of: C

a. a decrease in government spending on social programs. b. an increase in taxes. c. an increase in investment by firms. d. an increase in the import demand.

Inflation is defined as: D

a. a sustained increase in the price of a particular good or service. b. a sustained increase in the rate of unemployment in an economy. c. a sustained growth in the real gross domestic product (GDP) of an economy. d. a sustained increase in the average price level of goods and services in an economy.

The benefits paid by the largest pension program in the United States are: C

a. adjusted for changes in the market rate of interest. b. revised every 5 years. c. adjusted for changes in the price level. d. not adjusted for changes in the price level.

Cost-push inflation could arise as a result of: B

a. an increase in exports. b. an increase in oil prices. c. a fall in the wage rates of skilled labor. d. a decrease in taxes.

A decrease in aggregate supply causes: D

a. deflation. b. disinflation. c. demand-pull inflation. d. cost-push inflation.

Suppose an economy had an inflation rate of 7% last year that has decreased to 6% this year. This means that the economy is: A

a. experiencing disinflation. b. experiencing deflation. c. suffering from hyperinflation. d. experiencing a wage-price spiral.

The nominal interest rate: D

a. is the interest rate expressed in dollars of constant purchasing power. b. is the basis for decisions taken by the lenders and the borrowers in an economy. c. equals the difference between the real interest rate and the inflation rate. d. varies directly with the rate of expected inflation in an economy.