Question 1

Refer to the following figure to answer the next four questions:
 
-As presented in the figure,one could correctly state that:

Accepted Answer

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

Question 2

Which statement best represents the purpose for measuring annual inflation (or deflation)?

Accepted Answer

The purpose of measuring annual inflation (or deflation) is to find out whether the overall cost of living has changed. This helps to understand how much purchasing power has been impacted due to changes in the prices of goods and services. The other options mentioned - A, B, D, and E - do not encompass the broader purpose of measuring inflation/deflation.

Question 3

In terms of inflation,the period from the mid-1980s until today in the United States is called the "Great Moderation." This refers to the fact that:

Accepted Answer

The "Great Moderation" refers to the period of reduced volatility in economic output and inflation, where the high inflation rates of the 1970s and early 1980s were replaced by more stable and controlled inflation rates, generally under 10%.

Question 4

Consider a nation in which the price index was 150 last year and this year it is 130.Which statement is correct?

Accepted Answer

Deflation is defined as a decrease in the general price level of goods and services in an economy over a period of time. In this case, the price index has decreased from 150 to 130, which means that there has been deflation. To calculate the percentage of deflation, we use the formula: (initial index - final index) / initial index x 100. Therefore, (150-130)/150 x 100 = 13.33%. Thus, option E is correct.

Question 5

Suppose that the consumer price index of a country was 160 at Year X and 164 at the end of Year Y.What was the country's inflation rate during Year Y?

Accepted Answer

The inflation rate is the percentage rate of change in the price level from one year to the next. 
In this case, the CPI increased from 160 to 164 from Year X to the end of Year Y. 
To calculate the inflation rate, we use the formula: 
Inflation rate = ((CPI Year Y - CPI Year X) / CPI Year X) x 100%
Plugging in the numbers, we get:
Inflation rate = ((164 - 160) / 160) x 100% = 2.5%
Therefore, the country's inflation rate during Year Y was 2.5%, which is option B.

Question 6

The average inflation rate in the United States from 2000-2012 was about:

Accepted Answer

The average inflation rate in the United States from 2000-2012 was about 2%. This information can be found by looking at the Consumer Price Index (CPI) data during this time period, which measures changes in the price level of goods and services consumed by households. The average annual inflation rate during this time period was 2.21%.

Question 7

Refer to the following table to answer the next four questions:
 
-As presented in the table,the rate of inflation from 1999-2000 (i.e.,during the year 2000) was (rounded to two decimal places):

Accepted Answer

To calculate the rate of inflation from 1999-2000, we need to use the formula: ((CPI in 2000 - CPI in 1999)/CPI in 1999) x 100. Using the data from the table, we get ((175-161)/161) x 100 = 8.70%. Rounded to two decimal places, the answer is 8.75%, which corresponds to choice D.

Question 8

You know that the consumer price index (CPI) at the beginning of this year was 250 and the rate of inflation was 14%; this would mean:

Accepted Answer

The CPI at the end of the year would be 285, as the rate of inflation of 14% would be added to the starting CPI of 250.

Question 9

Refer to the following figure to answer the next four questions:
 
-Based on the figure,one could correctly state that:

Accepted Answer

The figure shows that both U.S. and E.U. inflation rates were generally higher in the 1970s and 1980s and tended to be lower in the 1990s. Therefore, option D is the correct statement. Option A is incorrect as it wrongly states that the situation was reversed for the European Union in the later years. Option B is incorrect as it states that inflation was higher in the 1990s, which is not consistent with the figure. Option C is incorrect as it states that deflation was a problem in the 1990s, which is not consistent with the figure. Lastly, option E is incorrect as it is not consistent with the data in the figure.

Question 10

Refer to the following figure to answer the next four questions:
 
-As presented in the figure,one could correctly state that during the period shown:

Accepted Answer

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

Question 11

If the goods producers buy change dramatically between years,then:

Accepted Answer

The GDP deflator measures the prices of all the goods and services produced domestically, while the CPI only measures the prices of goods and services consumed by households. Therefore, if the goods producers buy change dramatically, it would be reflected in the GDP deflator but not necessarily in the CPI.

Question 12

Consider a nation in which the price index last year was 130 and this year it is 150.Which statement is correct?

Accepted Answer

The answer of Consider a nation in which the price...

Question 13

In Nation A,the price index rises from 110 to 120 in a particular year.In the same year,the price level rises from 120 to 130 in Nation B.This means:

Accepted Answer

To calculate the rate of inflation, we can use the following formula:
Rate of Inflation = ((New Price Index - Old Price Index)/(Old Price Index))*100
For Nation A:
Rate of Inflation = ((120 - 110)/110)*100 = 9.09%
For Nation B:
Rate of Inflation = ((130 - 120)/120)*100 = 8.33%
Therefore, Nation A is experiencing inflation of less than 9.3% and Nation B is experiencing inflation of less than 8.5%. So, the correct answer is E.

Question 14

Refer to the following figure to answer the next four questions:
 
-Based on the figure,one could correctly state that:

Accepted Answer

Based on the figure, it can be seen that generally, E.U. inflation was greater than U.S. inflation, with some very brief exceptions.

Question 15

In Bovania,milk constitutes 56% of the typical basket of goods for a typical consumer.Let's say the price of milk rises by 7% and the prices of all other goods fall by 4%.Based on the information given,we can definitely say:

Accepted Answer

Since the price of milk, which constitutes 56% of the typical basket of goods, rises by 7%, it will have a significant impact on the overall consumer price index (CPI). Even though the prices of all other goods fall by 4%, the rise in milk prices will outweigh this decrease, resulting in a higher CPI. Therefore, we can definitely say that the CPI in Bovania is greater than in the previous year.

Question 16

Michael Chang buys only tennis rackets during a particular year.During the year in question,the price of all goods rises by 10% on average,but the price of tennis rackets remains the same.Which statement is correct?

Accepted Answer

Michael does not experience inflation because he only buys tennis rackets, and their price remains the same. While the average price of all goods rises by 10%, this does not affect Michael's purchasing power since the price of the only good he buys doesn't change. Therefore, he does not benefit from inflation, nor does he suffer from it.

Question 17

If people bought the same market basket of goods as the average consumer again and again:

Accepted Answer

If people consistently bought the same market basket of goods, the weights used to calculate the CPI would remain constant and the CPI would be extremely accurate in reflecting changes in the prices of those goods over time.

Question 18

The percentage change in any economic variable,including the consumer price index (CPI),is measured by which equation?

Accepted Answer

The percentage change in any economic variable is measured by the formula ((Current Year - Previous Year) / Previous Year) * 100. Option B has the correct formula when simplified.

Question 19

The concept of a price index is that:

Accepted Answer

A price index measures how the prices of a fixed basket of goods and services change over time, keeping the items in the basket constant.

Question 20

It is rare when prices fall in modern times.However,it is likely that they would fall during severe recessions.What year is the most likely for this to have occurred?

Accepted Answer

The most severe recession in modern times was the Great Recession that occurred from 2007 to 2009. Therefore, the most likely year for prices to have fallen would be 2009.

Quiz 8: The Price Level and Inflation

Refer to the following figure to answer the next four questions: -As presented in the figure,one could correctly state that:

Which statement best represents the purpose for measuring annual inflation (or deflation) ?