Download Inflation practice

Consumer price index (CPI) measures
a. gross domestic product.
c. unemployment.
b. inflation.
d. aggregate demand.
The “market basket” that is used by the Bureau of Labor Statistics to calculate prices is made up of which of the following?
a. food items only
b. nonfood items only
c. typical goods and services for an urban household
d. food and necessary services for any family
Economists look to which of the following explanations for inflation?
a. Too much money in the economy
b. demand for goods exceeds supply, as in wartime
c. producers raise prices in order to meet increased costs
d. All of the above
Which of the following correctly describes a “wage-price spiral?”
A. An increase in nominal wages causes inflation, and inflation causes workers to demand even higher wages
in order to keep their real income constant. This cycle can repeat itself.
B. An increase in real wages due to growth in worker productivity causes inflation, which in turn increases
worker productivity
C. A decrease in prices causes workers to demand higher wages, which in turn puts additional downward
pressure on prices.
D. None of the above
When rational consumers expect inflation to occur, they are more likely to
A. Buy expensive goods sooner B. Hoard dollars C. Invest in fixed rate bonds D. Delay purchases
Inflation is defined as a rise in the general level of prices. When inflation occurs, the buying power of the dollar
would
A. Increase
B. Decrease
C. Remain stable D. Not be affected
The Consumer Price Index (CPI) is best used to determine
A. The Dow Jones Index B. The rate of inflation C. Unemployment D. Currency exchanges
Of the following groups, who would be the most impacted by inflation?
A. Members of strong labor unions
B. People who do not have any debt
C. Employees who have received raises
D. Individuals living on fixed incomes
Which of these is an economic indicator used to tell how the economy is doing?
A. Equilibrium price B. Consumer Price Index
C. Job Satisfaction Rate D. Interest Rates
“Too much money chasing too few goods” is a common way to describe what economic concept?
A. Bankruptcy
B. Depression
C. Inflation
D. Recession
What occupation would be LEAST affected by inflation?
A. A doctor in private practice
B. An owner of a shipping company
C. An owner of a small hardware store
D. A retired teacher living on his pension
A left shift of the aggregate supply line causes an increase in
A. Deflation
B. Employment
C. GDP and employment
D. Inflation and unemployment
In a time of high inflation prices are rising quickly. In August, 1971, President Nixon attempted to reduce inflation
by declaring a freeze on prices. This move was effective in the short term, but was a failure long term because:
A. The presence of price controls encourages black market activity
B. When prices are low the value of the dollar increase, which makes U.S. goods cheaper overseas
C. As prices fall the demand for consumer goods tends to fall along with them, slowing the economy
D. Keeping prices artificially low allows demand to remain high, which keeps upward pressure on prices
Inflation is expected to be high for the foreseeable future, you expect to have stable employment, and you would like to
borrow money to buy a house. All else being equal, a savvy economics student would:
A. Borrow the money regardless, because the inflation rate would have no impact on the value of future loan
repayments
B. Borrow the money knowing that the payments would be made with increasingly cheaper dollars
C. Avoid borrowing because one cannot determine how much one’s monthly payment would be
D. Avoid borrowing because one would have to pay back the loan in more expensive dollars
In general, when aggregate demand exceeds aggregate supply, which of these is MOST likely to result?
A. Lower tax rates
B. Higher tax rates C. Lower unemployment D. Higher unemployment
Suppose 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%. Which of the following is true:
A.
The CPI will understate the negative impact of inflation on your purchasing power and standard of living
B.
The CPI will accurately state the negative impact of inflation on your purchasing power and standard of living
C.
The CPI will overstate the negative impact of inflation on your purchasing power and standard of living
D. None of the above
Inflation coupled with high unemployment is described by economists as
A. Hyperinflation B. Deflation
C. Stagflation
D. Inflationary Fiscal Policy