QUESTION 1

1. The likely result of an economy operating at full employment is:

   	a.	hyperinflation.
   	b.	cost-push inflation.
   	c.	a lower rate of growth.
   	d.	demand-pull inflation.

1 points

QUESTION 2

1. Inflation was a major problem in the United States during the early years of the Great Depression.

   True False

1 points

QUESTION 3

1. Tina Cole and her husband bought a deferred annuity that started paying them $700 a month in retirement benefits. They, along with millions of other people who live on fixed incomes, are examples of:

   	a.	those who are responsible for inflation.
   	b.	the big losers from inflation.
   	c.	stock market losers.
   	d.	the paradox of thrift.
   	e.	the big winners from inflation.

1 points

QUESTION 4

1. Disinflation means a decrease in:

   	a.	the rate of inflation.
   	b.	the prices of all products in the economy.
   	c.	the circular flow.
   	d.	the general level of prices in the economy.

1 points

QUESTION 5

1. Hyperinflation refers to a situation in which:

   	a.	the price level is extremely high.
   	b.	prices are falling extremely rapidly.
   	c.	prices are rising extremely rapidly.
   	d.	the price level is extremely low.

1 points

QUESTION 6

1. In which of the following years was inflation in the United States the highest?

   	a.	1990.
   	b.	1970.
   	c.	2007.
   	d.	1980.
   	e.	1960.

1 points

QUESTION 7

1. Real income for a given year would be less than nominal income in that year if:

   	a.	nominal income in that year was less than nominal income in the previous year.
   	b.	the consumer price index was greater than 100 in that year.
   	c.	the consumer price index was less than 100 in that year.
   	d.	nominal income in that year was greater than nominal income in the previous year.

1 points

QUESTION 8

1. Which of the following statements is true?

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

1 points

QUESTION 9

1. Cost-push inflation is due to:

   	a.	labor cost increases.
   	b.	energy cost increases.
   	c.	raw material cost increases.
   	d.	all of the above.

1 points

QUESTION 10

1. Suppose that last year you borrowed $100 at 5 percent interest to purchase a $100 pair of Nike cross-training shoes. This year you repaid the bank with interest. If the inflation rate was 10 percent last year, your purchase of the shoes would:

   	a.	not be affected at all by the inflation rate.
   	b.	make you an inflation loser as you paid $5 more than you should have for the shoes.
   	c.	make you an inflation winner as you saved $5 on the shoes.
   	d.	be taxed according to COLA adjustments.
   	e.	make you an inflation loser because of bracket creep.

1 points

QUESTION 11

1. Inflation refers only to rising prices at a given time period.

   True False

1 points

QUESTION 12

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

   	a.	30 percent.
   	b.	7.5 percent.
   	c.	15 percent.
   	d.	230 percent.

1 points

QUESTION 13

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

   	a.	Save as much as possible.
   	b.	Spend money as fast as possible.
   	c.	Lend money.
   	d.	Invest as much as possible.

1 points

QUESTION 14

1. Consider borrowers and lenders who agree to loans with fixed nominal interest rates. If inflation is higher than what the borrowers and lenders expected, then who benefits from lower real interest rates?

   	a.	Both borrowers and lenders benefit.
   	b.	Neither borrowers nor lenders.
   	c.	Only the lenders benefit.
   	d.	Only the borrowers benefit.

1 points

QUESTION 15

1. Exhibit 13-2 Consumer Price Index
   

   Year	Consumer Price Index
   1	80
   2	100
   3	105
   4	125
   5	150

   As shown in Exhibit 13-2, the rate of inflation for Year 3 is:

   	a.	5 percent.
   	b.	25 percent.
   	c.	10 percent.
   	d.	20 percent.

1 points

QUESTION 16

1. Cost-push inflation happens when technological innovation unexpectedly lowers the cost of production, causing increased demand for goods and services.

   True False

1 points

QUESTION 17

1. The real interest rate can be expressed as the:

   	a.	inflation rate minus the nominal interest rate.
   	b.	nominal interest rate minus the real interest rate.
   	c.	nominal interest rate minus the inflation rate.
   	d.	nominal interest rate plus the inflation rate.

1 points

QUESTION 18

1. During the period 1980-1986, the U.S. economy experienced disinflation.

   True False

1 points

QUESTION 19

1. Demand-pull inflation is most pronounced during a recession (as opposed to the recovery phase of the business cycle).

   True False

1 points

QUESTION 20

1. A measure comparing the prices of consumer goods and services that a household typically purchases to the prices of those goods and services purchased in a base year is

   	a.	the consumer price index.
   	b.	the base measure.
   	c.	inflation.
   	d.	the GDP deflator.
   	e.	the price level.

1 points

QUESTION 21

1. Demand-pull inflationary pressure increases as the economy approaches full employment.

   True False

1 points

QUESTION 22

1. The CPI (using a 2000 base year) for 1965 is 26.0. Suppose a household’s annual take-home pay in 1965 was $8,320. What would be an equivalent home pay in 2000?

   	a.	$10,483.
   	b.	$23,680.
   	c.	$21,632.
   	d.	$32,000.

1 points

QUESTION 23

1. The best definition of inflation is a(n):

   	a.	increase in the price of one important commodity such as food.
   	b.	increase in the purchasing power of the dollar.
   	c.	temporary increase in prices.
   	d.	persistent increase in the general level of prices as measured by a price index.

1 points

QUESTION 24

1. Suppose that the consumer price index (CPI) was 160 in Year X and 166 in Year Y, inflation during Year Y was approximately:

   	a.	66 percent.
   	b.	zero; prices were stable.
   	c.	3.8 percent.
   	d.	6 percent.

1 points

QUESTION 25

1. Inflation is defined as an increase in:

   	a.	the average price level.
   	b.	real GDP.
   	c.	all consumer products.
   	d.	real wages of workers.

1 points

QUESTION 26

1. As inflation drives up prices, people attempt to find substitutes and adjust what they buy. The resulting substitution bias problem causes the CPI to:

   	a.	omit the benefits of product quality improvements.
   	b.	have larger fluctuations than other price indexes.
   	c.	overstate the impact of higher prices on consumers.
   	d.	consistently underestimate the true inflation rate.

1 points

QUESTION 27

1. People with fixed incomes fare best in an inflationary period.

   True False

1 points

QUESTION 28

1. 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?

   	a.	68 percent.
   	b.	8 percent.
   	c.	60 percent.
   	d.	5 percent.

1 points

QUESTION 29

1. Demand-pull inflation occurs during a period of time in which total spending is increasing less than total output (GDP) is increasing.

   True False

1 points

QUESTION 30

1. If the consumer price index (CPI) in Year X was 300 and the CPI in Year Y was 325, the rate of inflation for Year Y was:

   	a.	8 percent.
   	b.	25 percent.
   	c.	325 percent.
   	d.	5 percent.