ECON 102 EXAM2 CH9

4) Assume the inflation rate falls from 4 percent to 2 percent. This means that

A) the price level is increasing more slowly.

25) The technique currently used to calculate the CPI implicitly assumes that over time consumers buy

A) the same relative quantities of goods as in a base year.

9) If the Consumer Price Index last year was 110 and 115 this year, the inflation rate is approximately

B) 4.5 percent.

48) If this year the price level is 135 and last year it was 125, the inflation rate is

B) 8 percent.

2) Suppose the CPI last year is 121 and the CPI this year is 137. The CORRECT method to calculate the inflation rate is

B) [(137 - 121)/121] × 100 = 13.2.

23) The commodity substitution bias is that

B) consumers decrease the quantity they buy of goods whose relative prices rise and increase the quantity of goods whose relative price falls.

11) The bias in the CPI typically

B) overstates inflation.

47) The currently used method for calculating the CPI

B) probably overstates inflation.

3) If the basket of goods and services used to calculate the CPI cost $200 in the reference base period and $450 in a later year, the CPI for the latter year equals

C) 225.

34) Which of the following measurements of inflation tracks the rate at which infrequently changed prices are changing?

B) the sticky-price CPI

13) The cost of inflation to society includes

B) unpredictable changes in the value of money.

12) At the end of last year, the CPI equaled 120. At the end of this year, the CPI equals 132. What is the inflation rate over this year?

C) 10 percent

30) In the table above, what price level belongs in space D?

C) 130

10) At the end of last year the Consumer Price Index was equal to 157.5 and at the end of this year it was equal to 163.8. What is the inflation rate over this time period?

C) 4.0 percent

39) The cost of inflation to society includes: I. the opportunity costs of resources used by people to protect themselves against inflation. II. the diversion of productive resources to forecasting inflation.

C) both I and II

16) If the inflation rate is negative, the price level in an economy is

C) falling.

21) Unpredictable changes in the value of money, which brings about gains and losses, are a consequence of unpredictable changes in

C) inflation.

19) If the CPI this year is 220 and was 200 in last year, the annual inflation rate between the two years is

D) 10 percent.

35) Of the following sequences of price levels, which CORRECTLY represents a 5 percent inflation rate?

D) 100, 105, 110.25, 115.76

1) Suppose the price level this year is 150 and the price level last year was 125. The inflation rate between last year and this year was

D) 20 percent.

32) Suppose that last year the Consumer Price Index was 124; this year it is 130.7. What was the inflation rate between these years?

D) 5.4 percent

29) Inflation is a problem when

D) All of the above answers are correct.

8) Which of the following means that the CPI overstates the actual inflation rate?

D) All of the above cause the CPI to overstate inflation.

22) As currently calculated, the CPI tends to overstate the true inflation rate because

D) it fails to correctly measure quality changes for some products.

44) In the United States, the inflation rate has

D) risen and fallen since the 1970s.

40) In China, suppose that the price level was 100 in 2014, 110 in 2015, and 120 in 2016. Over these three years

D) the inflation rate was positive.

18) In 2016, consumers in Dexter consumed only books and pens. The prices and quantities for 2016 and 2017 are listed in the table above. The reference base period for Dexter's CPI is 2016. What is the cost of the CPI basket in 2017?

A) $540

6) If the CPI was 122.3 at the end of last year and 124.5 at the end of this year, the inflation rate over these two years was

A) 1.8 percent.

45) The information in the table above gives the 2016 reference base period CPI basket and prices used to construct the CPI for a small nation. It also has the 2017 prices. What is the value of the CPI for the reference base period, 2016?

A) 100

50) Last year's price level was 120 and since then there has been a 5 percent inflation. This year's price level is

A) 126.

24) The CPI basket contains 400 oranges and 800 pens. In the base year, the price of an orange is $1.00 and the price of a pen is $0.75. This year, urban consumers each buy 300 oranges at $2.00 each and 850 pens at $1.00 each. The CPI this year is

A) 160.

38) In the table above, what inflation rate belongs in space A?

A) 17.0 percent

17) If the CPI basket of goods cost $200 in the reference base period and $450 in a later year, the CPI in the later year equals

A) 225.

20) If the CPI was 132.5 at the end of last year and 140.2 at the end of this year, the inflation rate over these two years was

A) 5.8 percent.

33) In the table above, what inflation rate belongs in space B?

A) 6.8 percent

49) If this year's price level exceeds last year's

A) the inflation rate between these years has been positive.

15) Suppose that the price level was 100 in 2014, 110 in 2015, and 130 in 2016. Over these three years

A) the inflation rate was positive and accelerating.

27) The information in the table above gives the 2016 reference base period CPI basket and prices used to construct the CPI for a small nation. It also has the 2017 prices. What is the value of the CPI for 2017?

C) 140

42) If a new and better good replaced an older and less expensive good, then the price level measured by the CPI

C) is higher than the actual price level.

26) Because of the biases in calculating the CPI, actual inflation is

C) less than the measured inflation rate.

36) The biases in the CPI include the

C) new goods, quality change, and substitution biases.

31) The consumer price index (CPI)

A) compares the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period.

41) If the CPI is 120, this means that

A) prices are 20 percent higher than in the reference base period.

46) Substitution bias in the CPI refers to the fact that the CPI

A) takes no account of the substitution of goods by consumers when relative prices change.

43) Which of the following measurements of inflation strips out volatile food and fuel prices?

A) the core PCE

5) In the above table, the inflation rate between 2013 and 2014 is approximately

B) 10 percent.

7) If the price level for the last three months has been 112, 125, and 126, we would say

B) inflation was more rapid between the first and second month than between the second and third month.

28) An increase in the price level is defined as

B) inflation.

14) In July 2014, the CPI inflation rate was 0.3 percent while the core CPI inflation rate was 0.1 percent. The difference between these two measurements of inflation indicates

C) prices for food and fuel were increasing more rapidly than prices for other goods.

37) Hyperinflation is defined as

D) very high inflation rates.