Question 1

If the average price level rises from 120 in year 1 to 130 in year 2, the inflation rate between years 1 and 2 will be:

Accepted Answer

The inflation rate between years 1 and 2 can be calculated using the formula: 
Inflation rate = ((year 2 price level - year 1 price level) / year 1 price level) x 100%

Plugging in the given values, we get:
Inflation rate = ((130 - 120) / 120) x 100%
Inflation rate = (10 / 120) x 100%
Inflation rate = 0.0833 x 100%
Inflation rate = 8.33%

Therefore, the best choice is B as it is the correct answer and the explanation shows how to calculate it.

Question 2

The basket of goods bought by the average consumer:

Accepted Answer

The basket of goods bought by the average consumer is not constant as it is influenced by changes in technology, tastes, and income. Therefore, it is constantly changing over time.

Question 3

From 2003 to 2013, the United States experienced average annual inflation of about:

Accepted Answer

Historically, the United States has experienced an average annual inflation rate of about 2.4% from 2003 to 2013. This rate is considered moderate and is generally targeted by the Federal Reserve as a healthy level of inflation for the economy.

Question 4

Inflation is an increase in the:

Accepted Answer

Inflation is defined as an increase in the average level of prices. This means that goods and services are becoming more expensive over time, and the purchasing power of a given amount of money is decreasing. The value of the dollar and the New York Stock Exchange may be influenced by a variety of factors, but they are not direct measures of inflation. Nominal output can be affected by inflation, but it is not the same thing as inflation itself.

Question 5

Inflation refers to an increase in the:

Accepted Answer

Inflation refers to the increase in the average level of prices in an economy over time. As the general price level rises, the purchasing power of money decreases.

Question 6

The consumer price index measures the prices of:

Accepted Answer

The consumer price index measures the prices of a fixed basket of goods and services typically purchased by American households, including food, housing, transportation, and healthcare. Therefore, option B is the correct choice. Option A is incorrect because it includes all final goods, not just those typically purchased by consumers. Option C is incorrect because it includes intermediate goods, which are not directly purchased by consumers. Option D is incorrect because it includes introductory goods, which are not typically included in the basket of goods used to measure inflation.

Question 7

The price level at the end of 2011 minus the price level at the end of 2010 is the _____ for the year 2011.

Accepted Answer

The change in the price level is the difference between the price level at the end of one year and the price level at the end of the previous year, which is commonly used to measure inflation or deflation. The consumer price index and gross national product are other economic indicators that are not specifically related to the change in the price level.

Question 8

The ratio of nominal economic output to real economic output multiplied by 100 is the:

Accepted Answer

The ratio of nominal economic output to real economic output multiplied by 100 is known as the GDP deflator. It measures the inflation in an economy by comparing the prices of all the goods and services produced in the country at current prices (nominal GDP) and constant prices (real GDP).

Question 9

A real price is:

Accepted Answer

A real price is a price that has been adjusted for inflation, meaning it reflects the actual purchasing power of a currency. This allows for a more accurate comparison of prices over time or between different countries with different currencies. Therefore, choice C is the correct answer.

Question 10

When the government of Zimbabwe ran out of money, President Robert Mugabe:

Accepted Answer

President Robert Mugabe's government printed more money, leading to hyperinflation in Zimbabwe.

Question 11

When computing the consumer price index, the Bureau of Labor Statistics takes into account changes in the:

Accepted Answer

The Bureau of Labor Statistics takes into account both the type of goods and the quality of goods when computing the consumer price index. This ensures that the index accurately reflects the changes in the cost of living for the average consumer. If only changes in the type of goods were taken into account, the index could be misleading due to quality improvements. Similarly, if only changes in quality were taken into account, the index could be misleading due to substitution effects.

Question 12

As a result of the changing variety and quality of goods that the typical consumer purchases each year, many economists argue that the CPI might:

Accepted Answer

The answer of As a result of the changing variety...

Question 13

Which measure of the average price level most closely corresponds to a student's daily economic activities?

Accepted Answer

The consumer price index (CPI) measures the average price level faced by consumers and is the most relevant measure for a student's daily economic activities. It takes into account the prices of goods and services that students are likely to consume, such as food, clothing, transportation, and housing, among others. The CPI is widely reported by media outlets and is used to adjust wages, Social Security payments, and other government benefits. Other measures, such as the producer price index (B), GDP deflator (C), and household price index (D) focus on different aspects of the economy and are less relevant to a student's daily activities.

Question 14

Which measure of prices includes all of the final goods and services in a nation's output?

Accepted Answer

The GDP deflator is a measure of overall price levels that includes all final goods and services produced within a country's borders. The consumer price index only includes prices of goods and services purchased by households, while the producer price index only includes prices at the wholesale level. The exchange rate measures the value of one currency in relation to another and is not a measure of prices within a single country.

Question 15

The inflation rate is the rate of change of the:

Accepted Answer

The inflation rate measures the rate of change in the average level of prices. Changes in the value of the dollar, New York Stock Exchange, and money supply can all impact inflation, but they are not direct measures of inflation itself.

Question 16

If the price level in 2018 is 150 and it rises to 165 in 2019, what is the rate of inflation between 2018 and 2019?

Accepted Answer

The rate of inflation between 2018 and 2019 can be calculated using the formula: 
Inflation rate = ((new price level - old price level)/old price level) x 100%
Plugging in the given values: 
Inflation rate = ((165-150)/150) x 100% = 10% 
Therefore, the correct choice is B) 10%.

Question 17

The average price for a basket of goods bought by a typical U.S. consumer is measured by the:

Accepted Answer

The consumer price index (CPI) measures the average price of a basket of goods and services commonly purchased by a typical U.S. household. This includes categories such as food, housing, transportation, and medical care. The CPI is often used as a measure of inflation and changes in the CPI can impact government policy decisions, such as interest rates or adjusting social security payments. The GDP deflator is a different measure that reflects changes in the prices of all goods and services produced in an economy and is used to calculate changes in real GDP. The producer price index measures changes in prices at the producer level and is not as relevant to measuring overall consumer price changes. The exchange rate reflects the value of one currency compared to another and does not directly measure the cost of goods in a country.

Question 18

Inflation is:

Accepted Answer

Inflation is an increase in the average level of prices over time, which means that the purchasing power of a currency decreases. Option A describes velocity of money, option B describes the concept of nominal confusion, and option C describes deflation.

Question 19

If the price level in 2016 is 140 and it falls to 133 in 2017, what has the economy experienced between 2016 and 2017?

Accepted Answer

The difference between the two price levels is (140-133)/140 = 0.05 or 5%, which indicates a decrease in the price level. Since the decrease is in percentage terms, it is called deflation. Therefore, the correct answer is D - 5% deflation.

Question 20

A measure of the average price received by suppliers is the:

Accepted Answer

The Producer Price Index (PPI) is a measure of the average prices received by domestic producers for their output.

Quiz 12: Inflation and the Quantity Theory of Money