macro test 4 questions

Suppose we shopped for a basket of goods in Year 1 and it cost $350. Suppose the same basket of goods adds up to $385 in Year 2. If we use Year 1 as a base year, what would be the Year 2 CPI?

110

If the consumer price index in Year 1 was 200 and the CPI for Year 2 was 230, the rate of inflation was:

15 percent

Suppose hypothetically that the consumer price index (CPI) was 150 in Year 1 and was 180 in Year 2. What would be the inflation rate for this period?

20 percent

Suppose the consumer price index (CPI) stands at 250 this year. If the inflation rate is 10 percent, then next year's CPI will equal:

275

Suppose that the consumer price index of a country was 160 at Year X and 168 at the end of Year Y. What was the country's inflation rate during Year Y?

5 percent

If the consumer price index (CPI) in Year 1 was 200 and the CPI in Year 2 was 215, the rate of inflation was:

7.5 percent

Which of the following correctly describes the aggregate supply curve?

A curve that shows the level of real GDP produced at different possible price levels.

Which of the following is true, other things equal?

A reduction in prices will increase the real wealth of those holding a fixed quantity of money.

How will an increase in the world price of crude oil influence the economy of an oil-importing country such as the United States?

Aggregate supply will decrease, leading to a decrease in real GDP.

Which of the following helps explain why real GDP is inversely related to the price level within the framework of the AD-AS model?

As prices fall, the wealth of people holding the fixed quantity of money increases, causing them to expand their purchases of goods and services.

_________ inflation can be explained by an ________ shift in the aggregate _________ curve.

Cost-push, rightward, supply

Which of the following statements is true?

Demand-pull inflation is caused by excess total spending. Cost-push inflation is caused by an increase in resource costs. If nominal interest rates remain the same and the inflation rate falls, real interest rates increase. If real interest rates are negative, lenders incur losses.

Which of the following are inherent in classical theory?

Flexible prices. Flexible wages. Long-run full employment.

Which of the following is not a reason for the downward slope of the aggregate demand curve?

Government spending effect

Which of the following correctly describes the interest-rate effect?

If the price level decreases, consumer purchasing power increases, the demand for credit falls, interest rates fall, debt-financed borrowing increases, and real GDP demanded increases.

Suppose that your income during Year X was $50,000, and the CPI for Year X was 150 (base year = Z. Back in Year Z your income was $30,000. Has your real income increased or decreased from Z to year X? By how much?

Increased by $3,333.33.

Which of the following is true of inflation?

It is an increase in the general price level of goods and services.

Which of the following is not a reason for the downward slope of an aggregate demand curve?

Real balances effect. Real interest-rate effect. Net exports effect.

During periods of hyperinflation, which of the following is the most likely response of consumers?

Spend money as fast as possible.

Which of the following is true about inflation?

Those who lend money at a rate below the rate of inflation suffer economic losses.

Which of the following could not be expected to shift the aggregate demand curve?

a change in real gdp

If the rate of inflation in a given time period turns out to be lower than lenders and borrowers anticipated, then the effect will be:

a redistribution of wealth from borrowers to lenders.

Suppose the price level falls. The result is that the:

aggregate demand curve would slope downward because of the real balances effect.

Price indexes like the CPI are calculated using a base year. The term base year refers to:

an arbitrarily chosen reference year.

The salary of the president of the United States in 2000 was $400,000. In 1940, the president's salary was $75,000. If the Consumer Price Index was 8.1 in 1940 and 100 in 2000, the 1940 presidential salary measured in terms of the purchasing power of the dollar in 2000 would be:

approximately $926,000.

Suppose workers become pessimistic about their future employment, which causes them to save more and spend less. If the economy is on the intermediate range of the aggregate supply curve, then:

both real GDP and the price level will fall.

Suppose the Organization of Petroleum Exporting Countries (OPEC) sharply increased the price of oil, which triggered higher inflation rates in the United States. This type of inflation is best classified as:

cost push inflation

An increase in the price level caused by a rightward shift of the aggregate demand curve is called:

demand pull inflation

The interest-rate effect is the impact on real GDP caused by the ____ relationship between the price level and the interest rate.

direct

A reduction in the rate of inflation is called:

disinflation

An increase in aggregate supply will cause the price level to:

fall and GDP to rise.

Cost-push inflation is caused by too much money chasing too few goods. t or f

false

Disinflation and deflation mean a decrease in the average price level. t or f

false

Inflation refers only to rising prices at a given time period. t or f

false

Suppose the consumer price index (CPI) for a given year is 150. This means the rate of inflation for the given year is 50 percent. t or f

false

The Keynesian range of the aggregate supply curve applies when the economy is at or near full employment. t or f

false

The real interest rate is the annual percentage amount of money that is earned on a sum loaned or deposited in a bank. t or f

false

Stagflation is a period of time when the economy is experiencing:

high inflation and high unemployment at the same time.

One way the consumer price index (CPI) differs from the GDP chain price index is that it:

includes only purchases of items bought by typical urban consumers.

Cost-push inflation is due to

increases in production costs.

An increase in the general price level is termed:

inflation

When the supply of credit is fixed, an increase in the price level stimulates the demand for credit, which in turn reduces consumption and investment spending. This argument is called the:

interest rate effect

Cost-push inflation is due to:

labor cost increases. energy cost increases. raw material cost increases.

The net exports effect exists because a:

lower price level will make domestically produced exports less expensive relative to foreign goods.

The real balances effect predicts that higher prices:

make people worse off by reducing the value of their wealth, leading them to save more and spend less.

The real interest rate can be expressed as the:

nominal interest rate minus the inflation rate.

Deflation:

none of these

If the rate of inflation in a given time period turns out to be higher than lenders and borrowers anticipated, then the effect will be:

none of these

If aggregate demand increases in the intermediate range of the aggregate supply curve then the:

price level rises and real GDP rises.

The concurrent problems of inflation and unemployment are termed:

stagflation

Suppose the price of gasoline rises and consumers cut back on their use of gasoline relative to other consumer goods. This situation would contribute to which bias in the consumer price index?

substitution bias

Greater entrepreneurship in the economy will shift the aggregate:

supply curve rightward

The aggregate demand curve will shift rightward when there is:

the expectation that future consumer income will rise.

In periods of high inflation,

the purchasing power of money is decreasing.

The aggregate supply curve is defined as:

the real GDP produced at different price levels.

The aggregate demand curve is drawn downward-sloping, because increases in the price level cause decreases in:

total spending (real GDP).

A consumer price index of 110 for a given year indicates that prices in that year are 10 percent higher than prices in the base year. t or f

true

During periods of inflation, the general price level of goods and services in the economy rises. t or f

true

Real income is the purchasing power of nominal (money) income. t or f

true

The aggregate demand curve slopes downward because of the real balances, interest-rate, and net exports effects. t or f

true

The nominal rate of interest is equal to the real interest rate plus the inflation rate. t or f

true

The real balances effect is caused by an inverse relationship between the price level and the real value of financial assets with fixed nominal value. t or f

true

The full employment level of real GDP can be represented on an aggregate supply and demand diagram as a(n):

vertical line

The aggregate demand curve:

would be little affected by a technological advancement.