question
The US Federal Open Market Committee views ________ as an acceptable level of inflation per year in the US (as measured by the CPI).
-2%
5%
2%
0
-2%
5%
2%
0
answer
2%
question
When prices are falling, economists say that there is
inflation
a contraction
deflation
an inverted inflation
inflation
a contraction
deflation
an inverted inflation
answer
Deflation
question
The term "inflation" is used to describe a situation in which
the economy is growing rapidly.
incomes in the economy are increasing.
the overall level of prices in the economy is increasing.
stock-market prices are rising.
the economy is growing rapidly.
incomes in the economy are increasing.
the overall level of prices in the economy is increasing.
stock-market prices are rising.
answer
the overall level of prices in the economy is increasing.
question
If the CPI in the first year was 90, in the second year was 100, and in the third year was 95, the economy experienced
Approximately 15 percent inflation between the first and second years and approximately 5 percent inflation between the second and third years.
Approximately 11 percent inflation between the first and second years and approximately 5 percent deflation between the second and third years.
Exactly 10 percent inflation between the first and second years and exactly 5 percent inflation between the second
and third years.
Exactly 20 percent inflation between the first and second years and exactly 5 percent deflation between the second and third years.
Approximately 15 percent inflation between the first and second years and approximately 5 percent inflation between the second and third years.
Approximately 11 percent inflation between the first and second years and approximately 5 percent deflation between the second and third years.
Exactly 10 percent inflation between the first and second years and exactly 5 percent inflation between the second
and third years.
Exactly 20 percent inflation between the first and second years and exactly 5 percent deflation between the second and third years.
answer
Approximately 11 percent inflation between the first and second years and approximately 5 percent deflation between the second and third years.
question
The CPI and the GDP deflator
generally show different patterns of movement.
always show identical changes.
generally move together.
always show different patterns of movement.
generally show different patterns of movement.
always show identical changes.
generally move together.
always show different patterns of movement.
answer
generally move together.
question
The real interest rate tells you
the purchasing power of your bank account.
how fast the number of dollars in your bank account rises over time.
how fast the purchasing power of your bank account rises over time.
the number of dollars in your bank account.
the purchasing power of your bank account.
how fast the number of dollars in your bank account rises over time.
how fast the purchasing power of your bank account rises over time.
the number of dollars in your bank account.
answer
how fast the purchasing power of your bank account rises over time.
question
If the price level rises, the value of money (buying power)
falls
None of these answers are correct
falls and then rises
rises and then falls
rises
falls
None of these answers are correct
falls and then rises
rises and then falls
rises
answer
Falls
question
The nominal interest rate is the
interest rate corrected for inflation.
real cost of borrowing to the borrower.
interest rate as usually reported by banks.
real rate of return to the lender.
interest rate corrected for inflation.
real cost of borrowing to the borrower.
interest rate as usually reported by banks.
real rate of return to the lender.
answer
interest rate as usually reported by banks.
question
The substitution bias in the consumer price index refers to the
fact that consumers substitute toward goods that have become relatively less expensive.
substitution of quality for quantity in consumer purchases over time.
substitution of new prices for old prices in the basket of goods from one year to the next.
substitution of new goods for old goods in the purchases of consumers.
fact that consumers substitute toward goods that have become relatively less expensive.
substitution of quality for quantity in consumer purchases over time.
substitution of new prices for old prices in the basket of goods from one year to the next.
substitution of new goods for old goods in the purchases of consumers.
answer
fact that consumers substitute toward goods that have become relatively less expensive.
question
Given the following information for any given year
the real interest rate for the year was 3%.
the nominal interest rate for the year was 6%.
What was the inflation rate that year?
There is not enough information provided to answer this question
9%
3%
6%
the real interest rate for the year was 3%.
the nominal interest rate for the year was 6%.
What was the inflation rate that year?
There is not enough information provided to answer this question
9%
3%
6%
answer
3%
question
Determine the effects on the CPI and the GDP deflator if Caterpillar raises the price of the industrial tractors it manufactures at its Illinois factory.
The GDP deflator rises but the CPI does not
The GDP deflator does not change but the CPI rises
Caterpillar is a foreign owned company so their output is not included in the US GDP or CPI
The GDP deflator rises and the CPI raises
The GDP deflator rises but the CPI does not
The GDP deflator does not change but the CPI rises
Caterpillar is a foreign owned company so their output is not included in the US GDP or CPI
The GDP deflator rises and the CPI raises
answer
The GDP deflator rises but the CPI does not
question
________ is/are an example/s of a government program/s that is/are indexed
all of these answers are correct
Social Security
Various parts of Medicare
Supplemental Nutrition Assistance Program (SNAP)
Various parts of Medicaid
all of these answers are correct
Social Security
Various parts of Medicare
Supplemental Nutrition Assistance Program (SNAP)
Various parts of Medicaid
answer
all of these answers are correct
question
The formula to compute the real interest rate is
real interest rate - inflation
real interest rate - nominal interest rate
nominal interest rate - inflation rate
inflation rate - nominal interest rate
real interest rate - inflation
real interest rate - nominal interest rate
nominal interest rate - inflation rate
inflation rate - nominal interest rate
answer
nominal interest rate - inflation rate
question
A price index in years after the base year:
Is never 100
Can be less than, greater than, or equal to 100
Is always greater than 100
Is always less than 100
Is never 100
Can be less than, greater than, or equal to 100
Is always greater than 100
Is always less than 100
answer
Can be less than, greater than, or equal to 100
question
The consumer price index is computed by comparing the cost of the typical market basket of goods purchased during a base year (evaluated at base year prices) with:
The cost of the same market basket evaluated at base year prices
The cost of the current market basket evaluated at current prices
The cost of the current market basket evaluated at base-year prices
The cost of the same market basket evaluated at current prices
The cost of the same market basket evaluated at base year prices
The cost of the current market basket evaluated at current prices
The cost of the current market basket evaluated at base-year prices
The cost of the same market basket evaluated at current prices
answer
The cost of the same market basket evaluated at current prices
question
The price index used to calculate most cost-of-living adjustments (COLAs) is the:
consumer price index
NDP deflator
GDP deflator
producer price index
consumer price index
NDP deflator
GDP deflator
producer price index
answer
consumer price index
question
Unexpected inflation will:
Hurt borrowers
Hurt borrowers and lenders equally
Have no effect on either borrowers or lenders
Hurt lenders
Hurt borrowers
Hurt borrowers and lenders equally
Have no effect on either borrowers or lenders
Hurt lenders
answer
Hurt Lenders
question
Which of the following statements is FALSE?
Whether you gain or lose during a period of inflation depends on whether your income rises faster or slower than the prices of the things you buy
There are no costs or losses associated with expected inflation
When unanticipated inflation occurs regularly, the degree of risk associated with investments in the economy increases
Inflation that is higher than expected benefits borrowers, and inflation that is lower than expected benefits lenders
Whether you gain or lose during a period of inflation depends on whether your income rises faster or slower than the prices of the things you buy
There are no costs or losses associated with expected inflation
When unanticipated inflation occurs regularly, the degree of risk associated with investments in the economy increases
Inflation that is higher than expected benefits borrowers, and inflation that is lower than expected benefits lenders
answer
There are no costs or losses associated with expected inflation
question
The CPI is
a measure of the overall cost of goods and services bought by a typical producer
is based on real GDP versus nominal GDP
is a measure of overall cost of all goods and services produced in an economy
a measure of the overall cost of goods and services bought by a typical consumer
a measure of the overall cost of goods and services bought by a typical producer
is based on real GDP versus nominal GDP
is a measure of overall cost of all goods and services produced in an economy
a measure of the overall cost of goods and services bought by a typical consumer
answer
a measure of the overall cost of goods and services bought by a typical consumer
question
The CPI is based on a
fixed basket of consumer goods and calculated by the BLS
fixed basket of goods and calculated by the Council of Economic Advisors
fixed basket of producer goods and calculated by the BLS
variable basket of goods and calculated by the Fed
fixed basket of consumer goods and calculated by the BLS
fixed basket of goods and calculated by the Council of Economic Advisors
fixed basket of producer goods and calculated by the BLS
variable basket of goods and calculated by the Fed
answer
fixed basket of consumer goods and calculated by the BLS
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