Economics Chapter 8

If a college professor's income has increased by 3 percent at the same time that prices have risen by 5 percent, the professor's real income has

decreased by 2%

During period of inflation

those people benefit whose real income rises faster than the general price level

Hyperinflation

causes the value of a currency to deteriorate so quickly that people become reluctant to hold that currency

T/F : Cost-push inflation is not as much of a concern to an economy as demand-pull inflation.

False; demand-pull inflation is much more tolerable to the economy than cost-push inflation.

T/F : Some ways to measure the price level include the Consumer Price Index, the Producer Price Index, and the GDP inflator.

False; price levels can be measured by the CPI, PPI, and GDP deflator.

T/F :The difference between real and nominal GDP is that nominal GDP factors in the effects of inflation.

False; real GDP factors in the effects of inflation.

T/F : Some of the macroeconomic effects mentioned in the chapter include the wealth effect, uncertainty, price effect, and tax effects.

False; some of the macroeconomic effects include uncertainty, tax effects, and speculation.

T/F : The GDP deflator is the most important and most commonly used index when computing the price level

False; the CPI is the most commonly used and most important index used in calculating the price level.

T/F : When calculating the price level, the base year is always defined as the year with the highest price index.

False; the base year is always identified by a price index of 1 or 100.

T/F : The income and substitution effects are some of the microeconomic effects of inflation mentioned in the chapter.

False; the income and wealth effects are some of the microeconomic effects of inflation.

T/F : An example of cost-push inflation is when the Federal Reserve decides to increase the money supply in the economy.

False; this is an example of demand-pull inflation

The introduction of a new currency in developing countries is generally a sign of

hyperinflation

Cost-push inflation is caused by...

the supply side of the market

When the economy is operating at full capacity, we might expect...

Demand-pull inflation

T/F : Because inflation and deflation are measured in terms of relative price levels, it is possible for average prices to rise or fall continuously without changing the individual price level.

False; because inflation and deflation are measured in terms of average price levels, it's possible for individual prices to rise or fall continuously without changing the average price level.

T/F : One reason that economists are concerned about the inflation rate is because it affects the cost of living and the cost of inputs.

True

T/F : Stagflation occurs when inflation is increasing and the economy is experiencing negative growth (or recession).

True

Inflation is defined as

a sustained increase in the weighted average of all prices.

If increases in total spending are not offset by increases in the supply of goods and services, the average level of prices will rise, what kind of inflation is this?

demand-pull inflation

The purchasing power of money

is the value of goods and services that can be bought with a dollar