Question

Question 11 pts

Which of the following describes inflation?

It increases the real value of anything expressed in dollars.

It means that the price of every good and service is rising.

It is an increase in the cost of a given basket of goods.

It can occur only when many goods are falling in price.

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Question 21 pts

David’s pay last year was $100,000. His pay this year increased to $115,000. The consumer price index increased from 100 to 115 over the same time period. What has happened to David’s real income from last year to this year?

David’s real income is unchanged.

David’s real income increased.

David’s real income decreased.

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Question 31 pts

Which is the largest expenditure category in the US CPI?

transportation

entertainment

housing

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Question 41 pts

If economists design a way to eliminate the substitution bias in CPI calculations, how is the CPI likely to change as a result?

The CPI will not be affected by this change.

The CPI will grow at a slower rate.

The CPI will grow at a faster rate.

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Question 51 pts

Rapid technological change is likely to increase which problem MOST for CPI as an accurate measure of cost of living changes?

substitution bias

new goods bias

income bias

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Question 61 pts

Inflation increases uncertainty in the markets because:

sellers raise the prices of their products very gradually and predictably.

consumers may put less effort into shopping to find the best price.

it is more difficult to stay aware of how one product compares in cost to another.

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Question 71 pts

Under ideal conditions inflation should not have any blurring effect on price signals. If wages and prices are rising at a constant 20% then individuals should be able to adjust their expectations accordingly. For example, if the price of bread increased by 20% and the price of the input flour also rose by 20%, the sellers should know that the real price of bread has not changed. The market equilibrium quantity and price has not changed. Why does inflation in the real world result in shortages and surpluses?

Input prices are rarely affected by inflation.

Price adjustments are not synchronized or smooth.

Sellers care more about nominal prices than real prices of goods.

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Question 81 pts

Which group of people is harmed by the redistribution of purchasing power due to unexpected inflation?

lenders

students with variable-rate educational loans

home buyers with adjustable rate mortgages

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Question 91 pts

Using your understanding of economic history and inflation, which inflation target is most advisable?

0%

1-2%

10-20%

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Question 101 pts

What is the one of the reasons low inflation may actually assist labor markets adjust towards equilibrium?

Low inflation allows for the gradual downward adjustment of real wages.

Low inflation increases the living standard of workers by diminishing their fixed debt.

Low inflation forces more frequent renegotiation of labor contract

Answer 1

11. Option C. Inflation is increase in the cost of a given basket of goods

12. Option A. There is 15% increase in CPI as well as 15% increase in David's income. so there is change in David's income

13. Option C. i.e. housing

14 Option B. CPI will grow at slower rate