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Exam 17: Inflation

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Question 21

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Suppose the price of banana rises over time and consumers respond by buying fewer bananas. This situation contributes to which bias in the consumer price index?

A) substitution bias
B) transportation bias
C) quality bias
D) indexing bias

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Question 22

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What are some criticisms of the CPI as a measure of inflation?

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The CPI is criticized as a measure of in...

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Question 23

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Last year the Jones family earned $40,000. This year their income is $42,000. In an economy with an inflation rate of 10 percent, which of the following is correct?

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

Suppose hypothetically that you buy a lot of food such as tofu, veggie burgers, and organic fruit that are not included in the market basket used to compute the CPI. In addition, suppose that all of these goods have become cheaper over the last year, while the overall CPI has increased by 6 percent. Then which of the following is true ?

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:

Which of the following can create demand-pull inflation?

In periods of high inflation,

Suppose your nominal income this year is 5 percent higher than last year. If the inflation rate for the period was 3 percent, then your real income was:

Last year the Olsen family earned $70,000. This year their income is $77,000. In an economy with an inflation rate of 8 percent, we can conclude that the Olsen's nominal income:

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

Losers from inflation include:

Assume that the real rate of interest is 5 percent and a lender charges a nominal interest rate of 15 percent. If a borrower expects that the rate of inflation next year will be 10 percent and the actual rate of inflation next year is 12 percent:

A reduction in the rate of inflation is called:

A worker would be hurt least by inflation when the:

Which of the following statements is true ?

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:

Demand-pull inflation is associated with:

Exhibit 7-1 Consumer Price Index As shown in Exhibit 7-1, the rate of inflation for Year 5 is:

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?