Module 4 Quiz

A sudden increase in inflation, ceteris paribus,

Raises the CPI and reduces real income.

Money illusion is the

Use of nominal dollars rather than real dollars to gauge changes in one's income or wealth.

Hyperinflation is

An inflation rate in excess of 200 percent, lasting at least one year.

To construct the Consumer Price Index, the Bureau of Labor Statistics must

Find out what people buy with their incomes and how the prices of what they buy change.

Real income is

Nominal income adjusted for inflation.

When natural disasters, such as hurricanes on the U.S. Gulf Coast or an earthquake in Japan, disrupt supply chains and push up the costs of production, this may result in

Cost-push inflation.

If consumers attempt to buy more goods than the economy can produce, the result is

Demand-pull inflation.

In the Full Employment and Balanced Growth Act of 1978, price stability means that

Inflation is less than 3 percent per year.

A decrease in the average level of prices of goods and services is

deflation