Title: Define and explain inflation
Course: TEST Course

Q: Which of the following does NOT describe inflation?
- It is an increase in the cost of a given basket of goods.
- It reduces the real value of anything expressed in dollars.
- It can occur even when many goods are falling in price.
- It means that the price of every good and service is rising.
A: It means that the price of every good and service is rising.

Q: Which of the following describes inflation?
- It means that the price of every good and service is rising.
- It increases the real value of anything expressed in dollars.
- It can occur only when many goods are falling in price.
- It is an increase in the cost of a given basket of goods.
A: It is an increase in the cost of a given basket of goods.

Q: Which of the following inflation rates is most likely to affect consumer behavior?
- 1.5%
- 2.5%
- 5%
- 15%
A: 15%

Q: Of the following inflation rates, which is most likely to affect consumer behavior?
- 1.0%
- 2.0%
- 6%
- 17%
A: 17%

Q: Which of the following BEST fits the definition of inflation?
- A new car model costs 15% more than the previous year’s model.
- The cost of education has increased by 100% over the past two decades.
- The price of most goods and services increases by 5% over a 2 year period.
A: The price of most goods and services increases by 5% over a 2 year period.

Q: For the definition of inflation, which of the following BEST fits?
- A new car model costs 12% more than the previous year’s model.
- The cost of education has increased by 75% over the past two decades.
- The price of most goods and services increases by 6% over a 3 year period.
A: The price of most goods and services increases by 6% over a 3 year period.

Q: Which of the following BEST describes the effect inflation has on purchasing power in the United States over the past several decades?
- $15 today has the same purchasing power as $100 in 1972.
- $100 today has the same purchasing power as $80 in 1972.
- $100 today has the same purchasing power as $15 in 1972.
A: $100 today has the same purchasing power as $15 in 1972.

Q: In the United States over the past several decades inflation has affected purchasing power. Which of the following BEST describes this effect?
- $20 today has the same purchasing power as $150 in 1972.
- $150 today has the same purchasing power as $75 in 1972.
- $150 today has the same purchasing power as $20 in 1972.
A: $150 today has the same purchasing power as $20 in 1972.

Q: A price index is NOT
- a weighted average price of some type of good or service (e.g. consumer prices).
- the cost of a specific basket of goods and services.
- an inflation rate.
A: an inflation rate.

Q: A price index is
- the cost of all goods and services.
- an inflation rate.
- a weighted average price of some type of good or service (e.g. consumer prices).
A: a weighted average price of some type of good or service (e.g. consumer prices).

Q: Which of the following is a step in calculating a price index?
- Adjusting for changes in the unemployment rate.
- Computing the cost of all goods and services in the base period.
- Selecting the kinds and quantities of goods and services to be included in the index.
A: Selecting the kinds and quantities of goods and services to be included in the index.

Q: The base year for the price index is
- the current year.
- the year with the biggest increase in prices from the previous year.
- an arbitrary year from which to measure price changes.
A: an arbitrary year from which to measure price changes.

Q: 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 increased.
- David’s real income decreased.
- David’s real income is unchanged.
A: David’s real income is unchanged.

Q: Kim’s nominal income is $75,000. If the consumer price index is 75, Kim’s real income is ________ in base year prices.
- $56,250
- $75,075
- $100,000
A: $100,000

Q: In the table below there are three years of a basket of retail goods. From this information calculate the price index of 1990 if the base year in 1980? (Round your answer to the nearest whole number.)

Good | Amount | 1980 | 1985 | 1990
Tomatoes | 25 | $0.15 | $0.25 | $0.55
Milk | 5 | $1.50 | $2.23 | $2.95
Eggs | 1 | $1.00 | $1.25 | $1.50
- 189
- 152
- 245
A: 245

Q: In the table below there are three years of a basket of retail goods. From this information calculate the price index of 1985 if the base year in 1980? (Round your answer to the nearest whole number.)

Good | Amount | 1980 | 1985 | 1990
Tomatoes | 25 | $0.15 | $0.25 | $0.55
Milk | 5 | $1.50 | $2.23 | $2.95
Eggs | 1 | $1.00 | $1.25 | $1.50
- 141
- 245
- 152
A: 152

Q: Given the table above, what is the price index for 2013, with 2012 as the base year having a price index of 100 (round your answer to the nearest whole number).

Items | Quantity in Basket | 2012 Price | 2013 Price
Cake | 3 | $12.00 | $13.00
Pie | 4 | $8.00 | $10.00
Cupcake | 10 | $2.00 | $2.50
- 110
- 120
- 118
A: 118

Q: Given the table above, what is the price index for 2013, with 2012 as the base year having a price index of 100 (round your answer to the nearest whole number).

Items | Quantity in Basket | 2012 Price | 2013 Price
Coffee | 8 | $4.00 | $4.50
Tea | 4 | $2.00 | $2.25
Soda | 6 | $1.25 | $1.50
- 100
- 88
- 114
A: 114

Q: In Fairwind Country, there are only 4 consumer goods or services: tourism, popcorn, carrots, and berries. Using the data in the following table, please calculate the CPI values for 2005 and 2015, using 1985 as a base year. The average family purchased the market basket indicated by the columns "Items" and "Quantity."

Items | Quantity | Year: 1985 | Year: 2005 | Year: 2015
 |  | Price | Amount Spent | Price | Amount Spent | Price | Amount Spent
Tourism | 2 | $125.00 |  | $150.00 |  | $200.00 |
Popcorn | 25 | $4.00 |  | $5.00 |  | $7.00 |
Carrots | 10 | $0.75 |  | $2.25 |  | $3.50 |
Berries | 15 | $1.50 |  | $2.50 |  | $4.00 |
Total | 2 |  |  |  |  |  |
- 2005: 137; 2015: 176
- 2005: 128; 2015: 138
- 2005: 128; 2015: 176
A: 2005: 128; 2015: 176

Q: In Imarith Country, there are only 4 consumer goods or services: tourism, popcorn, carrots, and berries. Using the data in the following table, please calculate the CPI values for 2010 and 2017, using 1990 as a base year. The average family purchased the market basket indicated by the columns "Items" and "Quantity."

Items | Quantity | Year: 1990 | Year: 2010 | Year: 2017
 |  | Price | Amount Spent | Price | Amount Spent | Price | Amount Spent
Tourism | 2 | $135.00 |  | $167.00 |  | $220.00 |
Popcorn | 25 | $5.00 |  | $5.75 |  | $9.00 |
Carrots | 10 | $1.00 |  | $2.55 |  | $4.50 |
Berries | 15 | $2.50 |  | $3.50 |  | $6.00 |
Total | 2 |  |  |  |  |  |
- 2010: 134; 2017: 181
- 2010: 128; 2017: 134
- 2010: 126; 2017: 181
A: 2010: 126; 2017: 181

Q: In 2005 the price index was calculated at 115.3 with 2000 as the base year. In 2006 the price index increased to 119.5. What was the inflation from 2005-2006?
- 4.2%
- 19.5%
- 15.3%
- 3.6%
A: 3.6%

Q: In 2008 the price index was calculated at 165.2 with 2005 as the base year. In 2009 the price index increased to 181.6. What was the inflation from 2008-2009?
- 9.0%
- 81.6%
- 65.2%
- 9.9%
A: 9.9%

Q: In the fictional country of Dirian the economics statistics department has been busy calculating the price index for a basket of goods from 2013 to 2017. January 2013 is the standardized price index, at 100, for a basket of consumer goods in the country. The price index increased in 2014 to 104.7, in 2015 to 109.3, in 2016 to 113.1, and in 2017 it increased to 119.2. You have been called to the country to help establish the rate of inflation for those years. What are the inflation rates in Dirian for 2014, 2015, 2016, and 2017?
- 2014: 4.7%; 2015: 9.3%; 2016: 13.1%; 2017: 19.2%
- 2014: 4.4%; 2015: 3.5%; 2016: 5.4%; 2017: 4.7%
- 2014: 4.7%; 2015: 4.4%; 2016: 3.5%; 2017: 5.4%
A: 2014: 4.7%; 2015: 4.4%; 2016: 3.5%; 2017: 5.4%

Q: The Department of Economic Health in the country of Cavia has calculated the price index for a basket of goods from 2014 to 2018. January 2014 is the standardized price index (at 100) for a basket of consumer goods. The price index increased in 2015 to 105.7, in 2016 to 108.6, in 2017 to 115.9, and in 2018 it increased to 120.4. What are the inflation rates in Cavia for 2015, 2016, 2017, and 2018?
- 2015: 5.7%; 2016: 8.6%; 2017: 15.9%; 2018: 20.4%
- 2015: 2.7%; 2016: 6.7%; 2017: 3.9%; 2018: 5.7%
- 2015: 5.7%; 2016: 2.7%; 2017: 6.7%; 2018: 3.9%
A: 2015: 5.7%; 2016: 2.7%; 2017: 6.7%; 2018: 3.9%

Q: If the Consumer Price Index was 186.5 at the end of last year and 179.8 at the end of this year, the country experienced which of the following?
- An inflation rate of 3.59 percent.
- An inflation rate of 3.72 percent.
- A deflation rate of 3.72 percent.
- A deflation rate of 3.59 percent.
A: A deflation rate of 3.59 percent.

Q: With a Consumer Price Index of 179.8 at the end of last year and 186.5 at the end of this year, the country experienced which of the following?
- An inflation rate of 3.72 percent.
- A deflation rate of 3.59 percent.
- A deflation rate of 3.72 percent.
- An inflation rate of 3.59 percent.
A: An inflation rate of 3.59 percent.

Q: The percentage change in the price level from one time period to the next, will be the ________.
- price index
- size of the business cycle trough
- inflation rate
A: inflation rate

Q: Which is the largest expenditure category in the US CPI?
- entertainment
- transportation
- housing
A: housing

Q: Which is the smallest expenditure category in the US CPI?
- recreation
- apparel
- other goods and services
A: other goods and services

Q: The following table indicates the CPI for the country of Praton over the last four years. Using the information in the table, calculate the annual inflation rates. Which time frame had the lowest annual inflation rate?

Year | CPI
2014 | 100
2015 | 109
2016 | 122
2017 | 127
- 2015-2016
- 2016-2017
- 2014-2015
A: 2014-2015

Q: The following table indicates the CPI for the country of Praton over the last four years. Using the information in the table, calculate the annual inflation rates. Which time frame had the lowest annual inflation rate?

Year | CPI
2014 | 100
2015 | 109
2016 | 122
2017 | 127
- 2015-2016
- 2014-2015
- 2016-2017
A: 2016-2017

Q: Which of the following is NOT a shortcoming of using the CPI to measure changes in the cost of living.
- Substitution bias
- Quality improvements
- Monetary policy
A: Monetary policy

Q: Why are certain policy decisions (like those undertaken by the Federal Reserve) best informed by using the core inflation index as opposed to the CPI?
- Food and energy prices do not affect the cost of living for consumers.
- Food and energy prices are notoriously difficult to calculate.
- Fluctuations in food and energy prices can be transitory.
A: Fluctuations in food and energy prices can be transitory.

Q: When the federal government calculates the cost of living they use the core inflation index instead of CPI, and use it to make policy decisions. What is one of the reasons to use the core inflation index as opposed to the CPI?
- Food and energy prices rarely affect consumer’s cost of living.
- It is difficult to calculate food and energy prices.
- The fluctuations in food and energy prices can be momentary.
A: The fluctuations in food and energy prices can be momentary.

Q: Which of the following is included in the core inflation index calculation?
- food prices
- gasoline prices
- housing prices
A: housing prices

Q: Which of the following is included in the core inflation index calculation?
- electrical energy prices
- food prices
- clothing prices
A: clothing prices

Q: Which of the following goods is likely not to be included in CPI calculations that take 1982-1984 as the base year?
- bread
- motor Oil
- baseballs
- laptop Computers
A: laptop Computers

Q: If you were to look at the CPI calculations based from 1984-1986, what of the following goods would likely be left out of that CPI calculation?
- eggs
- transmission fluid
- televisions
- smart phones
A: smart phones

Q: 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 grow at a faster rate.
- The CPI will not be affected by this change.
- The CPI will grow at a slower rate.
A: The CPI will grow at a slower rate.

Q: If economists design a way to eliminate the new goods bias in CPI calculations, how is the CPI likely to change as a result?
- The CPI will grow at a faster rate.
- The CPI will not be affected by this change.
- The CPI will grow at a slower rate.
A: The CPI will grow at a slower rate.

Q: Rapid technological change is likely to increase which problem MOST for CPI as an accurate measure of cost of living changes?
- substitution bias
- income bias
- new goods bias
A: new goods bias

Q: If an economist is considering swiftly increasing technological changes in an economy, which of the following is MOST likely to contribute to the CPI problem of accurately measuring of the cost of living changes?
- substitution bias
- income bias
- new goods bias
A: new goods bias

Q: If technological growth and innovation is halted over a protracted period, which CPI bias problem is likely to persist?
- new goods bias
- quality improvement bias
- income bias
- substitution bias
A: substitution bias

Q: The country of Zanzibar has experienced a halt in its technological growth and innovation over a protracted period. Which CPI bias problem is likely to persist in this scenario?
- new goods bias
- quality improvement bias
- income bias
- substitution bias
A: substitution bias

Q: The mid-1990s saw a rise in the use of mobile phones in the general population. The technology continued to improve in the early 2000s and in the mid-2000s smartphones revolutionized the way people communicated. The technology has changed very rapidly and improved the lives of consumers. With these rapid changes, what would you suspect has happened to the CPI calculation?
- The CPI has overstated the cost of living because of income bias.
- The CPI has understated the cost of living because of quality improvement bias.
- The CPI has overstated the cost of living because of quality improvement bias.
A: The CPI has overstated the cost of living because of quality improvement bias.

Q: In the early 2000s and flat screen TVs were introduced into the market. By the 2010s flat screens were flatter and less expensive. The technology changed quickly over just a few decades and improved consumers TV and entertainment experience. In regards to this technological improvement, how has the CPI calculation been biased?
- The CPI has overstated the cost of living because of income bias.
- The CPI has understated the cost of living because of quality improvement bias.
- The CPI has overstated the cost of living because of quality improvement bias.
A: The CPI has overstated the cost of living because of quality improvement bias.

Q: Which of the following is the name used to describe the price index that consists of raw materials and intermediate goods?
- Consumer Price Index
- Employment Cost Index
- Producer Price Index
A: Producer Price Index

Q: The Producer Price Index is based on prices paid for supplies and inputs by ________.
- consumers
- government
- producers of goods and services
A: producers of goods and services

Q: The GDP Deflator is
- the growth rate of real GDP between two periods.
- nominal GDP minus real GDP.
- the ratio of nominal GDP to real GDP.
A: the ratio of nominal GDP to real GDP.

Q: Which of the price indices below measures the cost of a basket of goods comprising of all the components of GDP?
- Consumer Price Index
- Core CPI
- GDP Deflator
A: GDP Deflator

Q: The prices of which of the following items are included in the GDP deflator?
- Consumption
- Consumption plus Investment but not Exports
- Consumption, Investment, Government Expenditures plus Exports minus Imports
A: Consumption, Investment, Government Expenditures plus Exports minus Imports

Q: The prices of which of the following items are included in the PPI?
- Finished goods from producers and labor costs
- Labor costs of producers
- Supplies, finished goods, intermediate goods, crude materials by producers
A: Supplies, finished goods, intermediate goods, crude materials by producers

Q: In the base year in a small island macroeconomy, nominal GDP was $400m. In a later year when the general level of all prices was twice as high, nominal GDP reached $1000m. Between the base year and the later year:
- there was real GDP growth by more than 100%.
- real GDP declined.
- inflation occurred.
A: inflation occurred.

Q: In a small country, the macroeconomy in its base year was a nominal GDP of $600m. In a later year, the general level of all prices was two and a half times as high, and nominal GDP reached $1500m. Between the base year and the later year:
- real GDP grew by more than 100%.
- real GDP declined.
- there was inflation.
A: there was inflation.

Q: Henry accepted a new position at a ball bearing manufacturing plant after graduation from college. With his macroeconomic education, Henry has been asked to advise the best way to measure inflation for the company to be able to accurately adjust its prices. What would Henry advise the company use?
- GDP Deflator
- Consumer Price Index
- Producer Price Index
A: Producer Price Index

Q: Henry has accepted a new position in the Federal government after working at ball bearing manufacturing plant. He has been put to the task to measure the economic growth as accurately as possible for the nation’s last year. What would Henry use in this instance to produce the most accurate growth analysis?
- Producer Price Index
- Consumer Price Index
- GDP Deflator
A: GDP Deflator