Econ 102 Chapter 9

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% B) 18.0% C) 2.5% D) 22.5%

A

Assume the inflation rate falls from 4% to 2%. This means that A) the price level is increasing more slowly B) the economy is experiencing deflation C) real GDP is decreasing D) the price level has fallen

A

If the CPI is 120, this means that A) prices are 20 percent higher than in the reference base period B) prices are 0.12 times higher than in the reference base period C) prices are 120 percent higher than in the reference base period D) the inflation rate must be positive

A

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 B) deflation occured at an accelerating rate C) prices were stable D) the inflation rate was positive but slowing

A

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 B) is the ratio of the average price of a typical basket of goods to the cost of producing those goods C) measures the increase in the prices of the goods included in GDP D) compares the cost of the typical basket of goods consumer in period 1 to the cost of a basket of goods typically consumed in period 2

A

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 B) relatively more of goods whose relative prices are rising C) goods and services whose quality improves at the rate of growth of real income D) relatively less of goods whose relative prices are rising

A

Which of the following measurements of inflation strips out volatile food and fuel price? A) the core PCE B) the PCE deflator C) the GDP deflator D) the chained CPI

A

An increase in the price level is defined as A) an expansion B) inflation C) a growth boom D) a recession

B

If the CPI last year was 110 and 115 this year, the inflation rate is approx A) 15% B) 4.5% C) 5% D) 10%

B

If the price level for the last three months has been 112,125,126, we would say A) inflation has been constant over the three months B) inflation was more rapid between the first and second month than between the second and third month C) inflation has steadily increased over the three months D) inflation was less rapid between the first and second month than between the second and third month

B

Suppose the CPI last year is 121 and the CPI this year is 137. The CORRECT method the inflation rate is A) 137 x 121 = 258 B) [(137-121)/121] x 100 = 13.2 C) (137-121)/100 = 0.16 D) (137/121) x 100 = 113.2

B

The bias in the CPI typically A) understates inflation B) overstates inflation C) about half the time overstates and about half the time understates the inflation rate D) cannot be measured or estimated

B

The commodity substitution bias is that A) government spending is a good substitute for investment expenditures B) consumers decrease the quantity they buy of goods whose relative prices rise and increase the quantity of goods whose relative price falls C) consumers substitute high-quality goods for low-quality goods D) national saving and foreign borrowing and interchangeable

B

The cost of inflation to society includes A) the lost spending when people do not have enough money B) unpredictable changes in the value of money C) higher interest rates paid by borrowers D) higher interest rates paid by the government on its debt

B

Which of the following measurements of inflation tracks the rate at which infrequently changed prices are changing? A) the PCE deflator B) the sticky-price CPI C) the core PCE D) the chained CPI

B

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? A) 12% B) 6% C) 10% D) None of the above are correct

C

At the end of last year, the CPI 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? A) 10.1% B) 3.85% C) 4% D) 6.3%

C

Because of the biases in calculating the CPI, actual inflation is A) accurately measured B) more than the measure inflation rate C) less than the measured inflation rate D) none of the above

C

If a new and better good replaced an older and less expensive good, then the price level measured by the CPI A) is the same as the actual price level because it measures the prices of the actual goods B) is lower than the actual price level C) is higher than the actual price level D) might be either higher or lower than the actual price

C

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 A) 450 B) 325 C) 225 D) 200

C

If the inflation rate is negative, the price level in an economy is A) rising rapidly B) rising slowly C) falling D) constant

C

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 measurements of inflation indicates A) a negative underlying inflation rate B) prices for food and fuel were increasing less rapidly than prices for other goods C) prices for food and fuel were increasing more rapidly than prices for other goods D) the underlying inflation rate was higher than the overall inflation rate

C

The biases in the CPI include the A) old goods, unemployment, and inflation biases B) old goods, new goods, and quality change biases C) new goods, quality change, and substitution biases D) substitution, new goods, and old goods biases

C

Unpredictable changes in the value of money, which brings about gains and losses, are a consequence of unpredictable changes in A) productivity B) unemployment rate C) inflation D) real GDP

C

As currently calculated, the CPI tends to overstate the true inflation rate because A) the market basket fails to weigh housing costs sufficiently B) the market basket selected is inappropriate C) we cannot know what the true inflation rate is D) it fails to correctly measure quality changes for some products

D

Hyperinflation is defined as A) very low inflation rates B) declining inflation rates C) rising but low inflation rates D) very high inflation rates

D

Inflation is a problem when A) it causes the value of money to vary unpredictably B) it is unpredictable C) it causes resources to be diverted from productive uses D) all of the above

D

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 A) 1.6 percent B) 16.6 percent C) 2 percent D) 20 percent

D

Which of the following means that the CPI overstates the actual inflation rate? A) quality change bias B) new goods bias C) outlet substitution bias D) All of the above

D