Question 1

Inflation occurs when
A) all prices in the economy rise.
B) the prices of some goods rise and prices of some goods fall, but more goods have price increases than decreases.
C) the prices of some goods rise and prices of some goods fall, but fewer goods have price increases than decreases.
D) the overall level of prices rises.
E) all prices in the economy fall.

Accepted Answer

Inflation is defined as a sustained increase in the overall level of prices in an economy. Option D is the only choice that accurately reflects this definition.

Question 2

Refer to the following figure when answering the next questions:
 
-Based on the figure, and if we define inflation as being "under control" at rates less than 10 percent, when was inflation under control?
A) 1996-2002 only
B) 1997-2003 and 2005-2011
C) 2005-2011 only
D) 1996-1997 only
E) It was never under control.

Accepted Answer

Inflation was under control during the periods of 1997-2003 and 2005-2011, as the inflation rate remained below 10 percent during these periods, according to the figure.

Question 3

What is the consumer price index CPI)?
A) The CPI is the measure of consumer prices in both rural and urban areas. It is calculated by adding up all prices.
B) The CPI is a measure of the price level based on the consumption patterns of a typical consumer.
C) The CPI is a measure of all prices in the economy.
D) The CPI is a measure of food prices, because food is what is consumed.
E) The CPI is a measure of food, clothing, and housing prices.

Accepted Answer

The CPI is a measure of the price level based on the consumption patterns of a typical consumer. It measures changes in the prices of goods and services purchased by households, including food, clothing, housing, transportation, and other goods and services.

Question 4

Refer to the following figure when answering the next questions:
 
-Based on the figure, which of the following statements best applies?
A) During most years depicted, Brazil experienced hyperinflation.
B) During some years depicted, Brazil experienced inflation; in other years, Brazil experienced deflation.
C) Typically, Brazil experienced moderate inflation, with a couple years of high inflation.
D) During the period shown, Brazil experienced mostly very high inflation, with a few exceptions.
E) During the period shown, Brazil experienced inflation, but it remained mostly low, with a few exceptional years of moderate inflation.

Accepted Answer

The graph shows that Brazil experienced moderate inflation during most of the years depicted, with a couple of years of high inflation (1990-1991). It does not show hyperinflation or mostly very high inflation throughout the period. Choice A and D are too extreme, and choice E is not supported by the graph.

Question 5

Refer to the following figure when answering the next questions:
 
-In the figure, which of the following changes in the consumer price index CPI) of Brazil would most closely reflect what is depicted during the 2003-2004 time period?
A) January 2003: 100; July 2003: 118; July 2004: 120
B) January 2003: 100; July 2003: 108; July 2004: 118
C) January 2003: 100; July 2003: 118; July 2004: 200
D) January 2003: 100; July 2003: 110; July 2004: 112
E) January 2003: 100; July 2003: 116; July 2004: 106

Accepted Answer

From January 2003 to July 2003, the CPI increased from 100 to 108, which is a 8% increase. From July 2003 to July 2004, the CPI increased from 108 to 118, which is a 9.26% increase. Choice B is the only option that has a similar pattern of increase in the CPI as depicted in the figure.

Question 6

Typically the consumer price index CPI) is calculated by checking the prices of
A) all goods in 38 geographic locations.
B) only consumer goods in all populated places in the United States using the Census Bureau's definition of a populated place).
C) about 8,000 goods in about 38 locations across the United States.
D) about 8,000 goods in about 38 locations in North America.
E) about 10,000 goods in about 75 locations in the United States.

Accepted Answer

The CPI is calculated by checking the prices of about 8,000 goods in about 38 locations across the United States. This includes a variety of goods and services commonly purchased by consumers such as food, housing, transportation, and healthcare. This data is used to track changes in the cost of living over time and to determine the inflation rate.

Question 7

The agency that measures the consumer price index CPI) in the United States is the
A) Bureau of Economic Analysis.
B) Bureau of Labor Statistics.
C) Economic Adjustment Agency.
D) Department of Commerce Price Index Office.
E) Department of Vital Statistics.

Accepted Answer

The Bureau of Labor Statistics is responsible for measuring and reporting on the consumer price index (CPI) in the United States.

Question 8

Refer to the following figure when answering the next questions:
 
-According to the figure, deflation was occurring
A) between 2003 and 2004.
B) from 1996 until 1999.
C) from 1996 through 1999 and between 2003 and 2004.
D) in none of the years shown.
E) in all of the years shown.

Accepted Answer

The answer of Refer to the following figure when answering...

Question 9

Typically, the largest percentage category in the consumer price index CPI) is
A) transportation.
B) education.
C) food and beverages.
D) housing.
E) medical care.

Accepted Answer

Housing expenses, including rent, utilities, and home ownership costs, tend to make up the largest portion of the CPI. In fact, as of 2021, the housing category makes up approximately 42% of the CPI.

Question 10

If the consumer price index CPI) was 100 in the period of 1982-1984, then
A) there would be deflation.
B) this period was the base period.
C) this period was characterized by menu costs.
D) this period was economically optimal.
E) this period was inflationary.

Accepted Answer

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. The period of 1982-1984 was chosen as the base period for calculating the CPI, with a value of 100 assigned to it. This means that the CPI in subsequent periods is expressed relative to this base period, and any increase or decrease in the CPI represents inflation or deflation respectively. Therefore, B is the correct choice as this period was used as the reference point for CPI calculations.

Question 11

If the price of a typical market basket of goods increased from about $20 in 1960 to $200 in early 2012, then it
A) must not have contained the same goods in both periods.
B) rose at a 100 percent rate from 1960 until early 2012.
C) rose at a 10 percent rate per year from 1960 until early 2012.
D) rose by 10-fold from 1960 until early 2012.
E) rose by 40-fold from 1960 until early 2012.

Accepted Answer

The price of the market basket increased from $20 to $200, which is a 10-fold increase. Therefore, choice D is correct.

Question 12

Deflation is best described as when
A) all prices in the economy fall.
B) the prices of some goods rise and prices of some goods fall, but more goods have price increases than decreases.
C) the prices of some goods rise and prices of some goods fall, but fewer goods have price increases than decreases.
D) the overall level of prices of goods falls.
E) the overall level of prices of goods rises.

Accepted Answer

Deflation is defined as a decrease in the overall level of prices of goods, meaning that prices overall are falling. The other choices describe a combination of inflation and deflation or do not accurately describe the phenomenon of deflation.

Question 13

The Bureau of Labor Statistics releases consumer price index CPI) data
A) hourly.
B) daily.
C) weekly.
D) monthly.
E) only when the typical basket of goods changes.

Accepted Answer

The Bureau of Labor Statistics releases consumer price index (CPI) data on a monthly basis, typically around the middle of the month. This data is used to track changes in prices of goods and services over time, providing important information on inflation and the overall state of the economy.

Question 14

Inflation necessarily occurs when
A) the price of gasoline rises.
B) a greater number of goods increase in price compared to the number of goods that undergo a price decrease.
C) the overall price level, such as the consumer price index CPI), rises.
D) there is an increase in the rate of change in the price level.
E) the price of at least one good, but possibly more than one good, in the economy increases.

Accepted Answer

Inflation occurs when there is a sustained increase in the overall price level, as measured by the consumer price index (CPI) or other similar indices. The other options describe potential causes or consequences of inflation, but they do not necessarily guarantee the occurrence of inflation.

Question 15

Refer to the following figure when answering the next questions:
 
-Referring to the figure, we can observe that
A) inflation seemed to stabilize in the years 2000-2002, but it then spiked between 2002 and 2004.
B) inflation was always under control in every year shown.
C) there was a relatively constant increase in inflation throughout the entire period shown.
D) inflation tended to fall consistently throughout the entire period shown.
E) there were periods of inflation and deflation depicted in the chart.

Accepted Answer

Inflation appears to have stabilized between the years 2000-2002, but then it rose sharply between 2002 and 2004. Therefore, option A is the correct answer.

Question 16

The value of the consumer price index CPI) in 2011 was 229 compared to the base period's, which will always have the value of
A) 1.
B) 50.
C) 100.
D) 150
E) 229.

Accepted Answer

The base period by definition has a value of 100, so the answer is C.

Question 17

Deflation
A) automatically implies that, on average, everyone is better off because prices have fallen.
B) would negatively affect producers but positively affect consumers because producers must accept lower prices.
C) might easily make both producers and consumers better off because consumers might lose jobs due to falling prices and profit margins, and the falling profit margins would negatively impact producers.
D) might make you better off if your nominal wages fall more rapidly than prices.
E) automatically occurs when there are more goods with falling prices than there are goods with increasing prices.

Accepted Answer

Deflation leads to a decrease in general price level, which negatively affects producers as they receive less revenue for their products. However, consumers benefit from deflation as they can purchase more goods and services with their money. Therefore, producers must accept lower prices, and consumers may enjoy lower prices for goods and services.

Question 18

From 1960 until 2012, the long-run average rate of inflation in the United States was
A) less than 1 percent.
B) about 4 percent.
C) about 8 percent.
D) about 12 percent.
E) negative.

Accepted Answer

According to data from the Bureau of Labor Statistics, from 1960 to 2012 the long-run average rate of inflation in the United States was about 4 percent.

Question 19

Education typically composes about ______of the consumer price index( CPI).
A) 3 percent
B) 5 percent
C) 10 percent
D) 15 percent
E) 20 percent

Accepted Answer

Education typically composes about 3 percent of the Consumer Price Index (CPI). The CPI measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services, and education is just one of many components included in this index.

Question 20

Inflation in Zimbabwe in 2008
A) was very low.
B) did not exist; during 2008 Zimbabwe had deflation.
C) was about the same as its neighbors, somewhere around 20 percent.
D) was very high at the beginning of the year but fell when Robert Mugabe agreed to share power with Morgan Tsvangarai.
E) reached the rate of 80 billion percent per month.

Accepted Answer

Inflation in Zimbabwe in 2008 reached the rate of 80 billion percent per month. It was one of the worst examples of hyperinflation in history. Prices were doubling every 24.7 hours, making the currency essentially worthless.

Quiz 8: The Price Level and Inflation

Inflation occurs when

Refer to the following figure when answering the next questions: -Based on the figure, and if we define inflation as being "under control" at rates less than 10 percent, when was inflation under control?

What is the consumer price index CPI) ?

Refer to the following figure when answering the next questions: -Based on the figure, which of the following statements best applies?

Refer to the following figure when answering the next questions: -In the figure, which of the following changes in the consumer price index CPI) of Brazil would most closely reflect what is depicted during the 2003-2004 time period?

Typically the consumer price index CPI) is calculated by checking the prices of

The agency that measures the consumer price index CPI) in the United States is the

Refer to the following figure when answering the next questions: -According to the figure, deflation was occurring

Typically, the largest percentage category in the consumer price index CPI) is

If the consumer price index CPI) was 100 in the period of 1982-1984, then

If the price of a typical market basket of goods increased from about $20 in 1960 to $200 in early 2012, then it

Deflation is best described as when

The Bureau of Labor Statistics releases consumer price index CPI) data

Inflation necessarily occurs when

Refer to the following figure when answering the next questions: -Referring to the figure, we can observe that

The value of the consumer price index CPI) in 2011 was 229 compared to the base period's, which will always have the value of

Deflation

From 1960 until 2012, the long-run average rate of inflation in the United States was

Education typically composes about ______of the consumer price index( CPI) .

Inflation in Zimbabwe in 2008