Question 1

If the Consumer Price Index (CPI)decreases from 100 to 50 and the nominal wage decreases from $200 to $50,what is the change in the real wage in terms of the beginning year's dollars?
A) +$200
B) -$100
C) +$50
D) -$200
E) +$250

Accepted Answer

The real wage is calculated by dividing the nominal wage by the CPI. In the beginning year, the real wage was $200/100 = $2. In the new year, the CPI decreased to 50, so the new real wage is $50/50 = $1. Therefore, the change in the real wage is -$1 or a decrease of $1 per hour. To convert this to the beginning year's dollars, we multiply by the original CPI of 100: -$1 x 100 = -$100. So the real wage in terms of the beginning year's dollars has decreased by $100.

Question 2

Which of the following would be included in the GDP Price Index but not in the Consumer Price Index?
A) The price of a Chrysler automobile
B) The price of a fighter aircraft
C) The price of a used computer
D) The price of a tube of toothpaste
E) The price of a bottle of shampoo

Accepted Answer

The GDP Price Index includes all goods and services produced within a country, including those purchased by the government and businesses, such as fighter aircraft. The Consumer Price Index, on the other hand, only includes goods and services purchased by consumers, like toothpaste and shampoo.

Question 3

The real wage rate measures
A) nominal wages after taxes
B) what workers are paid in terms of this year's dollars
C) what workers are paid in terms of purchasing power
D) what workers have available for spending after paying their bills
E) the number of dollars earned by workers

Accepted Answer

The real wage rate measures what workers are paid in terms of purchasing power, taking into account the effect of inflation. It adjusts nominal wages for changes in the general level of prices, which allows us to compare wages across different time periods. Therefore, option C is the correct choice.

Question 4

If the prices of domestic consumer goods increased while the prices of imported consumer goods decreased,and the demand for each remained the same,which of the following would most likely occur?
A) The GDP price index would decrease while the CPI would increase.
B) Both the GDP price index and the CPI would decrease.
C) The GDP price index would increase more than the CPI.
D) The CPI would increase more than the GDP price index.
E) Both the GDP price index and the CPI would increase by the same amount.

Accepted Answer

The answer of If the prices of domestic consumer goods...

Question 5

Suppose the Consumer Price Index (CPI)increased by 5 percent over each of the last 5 years while the GDP price index increased by 12 percent annually.Which of the following reasons could explain this difference?
A) Police unions across the country agreed to substantial salary cuts.
B) Import good prices increased relative to domestic good prices.
C) The price of used automobiles increased substantially relative to the prices of other goods.
D) The price of fighter planes dropped due to increased competition in the aerospace industry.
E) The price of investment goods purchased by businesses increased substantially relative to the prices of all other goods.

Accepted Answer

The answer of Suppose the Consumer Price Index (CPI)increased by...

Question 6

Inflation reduces the average real income in the economy and redistributes purchasing power.

Accepted Answer

The answer of Inflation reduces the average real income in...

Question 7

In which of the following situations would a person be best off in real terms?
A) Receiving a 10 percent increase in a nominal wage,with an 8 percent rate of inflation in the economy
B) Receiving a 3 percent increase in a nominal wage,with a 0 percent rate of inflation in the economy
C) Receiving a 4 percent increase in a nominal wage,with a 5 percent rate of inflation in the economy
D) Receiving no increase in a nominal wage,with a 5 percent rate of deflation in the economy
E) Receiving a 2 percent decrease in a nominal wage,with a 6 percent rate of deflation in the economy

Accepted Answer

In D, a 0% increase in nominal wage combined with a 5% deflation effectively increases the purchasing power of the individual, as their money can buy more goods and services than before without needing an increase in the wage itself.

Question 8

Which of the following statements is true?
A) Nominal GDP = (price index $\div$  real GDP)$\times$ 100
B) Nominal GDP = (real GDP $\div$  price index)$\times$ 100
C) Real GDP = (price index $\div$  nominal GDP)$\times$ 100
D) Real GDP = (nominal GDP $\div$  price index)$\times$ 100
E) Price index = (real GDP $\div$  nominal GDP)$\times$ 100

Accepted Answer

Real GDP is calculated by dividing the nominal GDP by the price index (then multiplied by 100 to adjust for percentage form), which corrects for inflation and gives a more accurate measure of economic output.

Question 9

Suppose you had the following information regarding the economy:  Which of the following best describes the behavior of the real wage rate?
A) It increased from 2001 to 2002 and increased further from 2002 to 2003.
B) It dropped from 2001 to 2002 and then increased from 2002 to 2003.
C) It dropped from 2001 to 2002 and then remained the same from 2002 to 2003.
D) It increased from 2001 to 2002 and then dropped from 2002 to 2003.
E) It remained the same from 2001 to 2002 and then increased from 2002 to 2003.

Accepted Answer

The answer of Suppose you had the following information regarding...

Question 10

Use the table below to find the real wage in 2007 (in 2006 dollars). 
A) $8.06
B) $8.13
C) $8.39
D) $13.00
E) $7.81

Accepted Answer

The answer of Use the table below to find the...

Question 11

The index used to translate nominal GDP into real GDP is the
A) Consumer Price Index
B) Wholesale Price Index
C) GDP Price Index
D) Producer Price Index
E) Manufacturer's Input Price Index

Accepted Answer

The GDP Price Index (also known as the GDP deflator) is specifically designed to measure inflation within an economy, making it the best choice for translating nominal GDP into real GDP. Unlike other indexes listed, such as the Consumer Price Index (which measures the cost of goods and services for households) or the Producer Price Index (which measures prices received by producers), the GDP Price Index takes into account all goods and services produced within an economy.

Question 12

If the Consumer Price Index (CPI)increases from 100 to 200 and the nominal wage increases from $100 to $400,what is the change in the real wage in terms of the beginning year's dollars?
A) +$200
B) +$400
C) +$100
D) +$300
E) -$200

Accepted Answer

To calculate the change in the real wage, we need to adjust the nominal wage for inflation using the CPI. The real wage is calculated as: Real Wage = Nominal Wage/CPI * 100.
In the beginning year, the real wage is:
Real Wage = 100/100 * 100 = $100
After the increases in CPI and nominal wages, the real wage is:
Real Wage = 400/200 * 100 = $200
The change in real wage is therefore $200 - $100 = $100, an increase of $100. Therefore, the correct choice is C.

Question 13

Economists maintain that the wage rate that workers should really care about is
A) both the real wage rate and the nominal wage rate
B) the nominal wage rate
C) the nominal wage rate multiplied by the real wage rate
D) neither the real wage rate nor the nominal wage rate
E) the real wage rate

Accepted Answer

Economists maintain that the wage rate that workers should really care about is the real wage rate, which is the purchasing power of the nominal wage rate. The real wage rate indicates the amount of goods and services a worker can afford with their wage. The nominal wage rate, on the other hand, is the wage rate in current dollars without adjusting for inflation.

Question 14

Suppose workers agreed to a contract that guaranteed a real wage increase of 3 percent per year.If the inflation rate was 7 percent over the following year,what is the required increase in the nominal wage to meet the contract requirements?
A) 10 percent
B) 3 percent
C) 4 percent
D) 7 percent
E) 1 percent

Accepted Answer

To meet the contract requirements of a 3 percent real wage increase when the inflation rate is 7 percent, the nominal wage must increase by 10 percent. This is because the nominal wage needs to cover both the inflation rate and the real wage increase. The calculation is as follows: if inflation is 7 percent, to maintain purchasing power, wages must increase by at least 7 percent. To then increase real wages by 3 percent on top of maintaining purchasing power, the total increase must be 10 percent.

Question 15

Suppose workers agreed to an indexed contract that increased their nominal wage by 4 percent plus 25 percent of any increase in the Consumer Price Index (CPI).If the CPI increased by 8 percent,what would be the change in the real wage?
A) 4 percent
B) -2 percent
C) 0 percent
D) -4 percent
E) 2 percent

Accepted Answer

The answer of Suppose workers agreed to an indexed contract...

Question 16

If prices (as measured by the CPI)tripled and nominal wages tripled,what would happen to real wages?
A) They would triple.
B) They would remain unchanged.
C) They would increase by one-third.
D) They would decrease by one-third.
E) They would increase by a factor of nine.

Accepted Answer

Real wages are calculated by dividing nominal wages by the price level (CPI). If both prices and nominal wages triple, the ratio between the two remains unchanged, therefore real wages remain unchanged.

Question 17

The formula for determining a real variable is real variable =
A) (nominal variable $\div$  100)$\times$ CPI
B) (nominal variable $\times$ CPI)$\div$  100
C) (nominal variable $\div$  price index)$\times$ 100
D) (nominal variable $\div$  price index)+ 100
E) (nominal variable $\div$  price index)$\div$  100

Accepted Answer

The real variable is calculated by dividing the nominal variable by the price index and then multiplying by 100 to adjust for inflation.

Question 18

Which of the following would be included in the Consumer Price Index but not in the GDP Price Index?
A) The price of a used automobile
B) The price of a dinner in a U.S.restaurant
C) The price of a U.S.-manufactured stereo system
D) The price of an IBM computer
E) The price of a new Ford automobile

Accepted Answer

The Consumer Price Index includes the price of used goods, while the GDP Price Index only includes newly produced goods.

Question 19

If the price of used automobiles increased dramatically relative to all other prices,and the demand for all goods remained the same,which of the following would most likely occur?
A) The GDP price index would decrease less than the CPI.
B) Both the GDP price index and the CPI would decrease.
C) The GDP price index would increase more than the CPI.
D) The CPI would increase more than the GDP price index.
E) Both the GDP price index and the CPI would increase by the same amount.

Accepted Answer

The increase in the price of used automobiles would lead to an increase in the CPI as it measures the prices of goods and services consumed by households. However, it would not have a significant impact on the GDP price index as it measures the prices of all new goods and services produced domestically. Therefore, the CPI would increase more than the GDP price index.

Question 20

In which of the following situations would a worker have the greatest real income?
A) She receives a pay cut and her nominal wage falls by 5 percent,while the CPI falls by 20 percent.
B) She receives a pay cut and her nominal wage falls by 5 percent,while the CPI increases by 10 percent.
C) Her nominal wage remains the same,as does the CPI.
D) She receives a raise and her nominal wage increases by 5 percent,while the CPI increases by 10 percent.
E) She receives a raise and her salary increases by 5 percent,while the CPI falls by 5 percent.

Accepted Answer

In option A, the worker's real income increases the most because although her nominal wage falls by 5 percent, the cost of living, as measured by the CPI, falls by 20 percent. This means her income buys more goods and services despite the pay cut, leading to the greatest increase in real income.

Quiz 19: The Price Level and Inflation

If the Consumer Price Index (CPI) decreases from 100 to 50 and the nominal wage decreases from $200 to $50,what is the change in the real wage in terms of the beginning year's dollars?

Which of the following would be included in the GDP Price Index but not in the Consumer Price Index?

The real wage rate measures

If the prices of domestic consumer goods increased while the prices of imported consumer goods decreased,and the demand for each remained the same,which of the following would most likely occur?

Suppose the Consumer Price Index (CPI) increased by 5 percent over each of the last 5 years while the GDP price index increased by 12 percent annually.Which of the following reasons could explain this difference?

Inflation reduces the average real income in the economy and redistributes purchasing power.

In which of the following situations would a person be best off in real terms?

Which of the following statements is true?

Suppose you had the following information regarding the economy: Which of the following best describes the behavior of the real wage rate?

Use the table below to find the real wage in 2007 (in 2006 dollars) .

The index used to translate nominal GDP into real GDP is the

If the Consumer Price Index (CPI) increases from 100 to 200 and the nominal wage increases from $100 to $400,what is the change in the real wage in terms of the beginning year's dollars?

Economists maintain that the wage rate that workers should really care about is

Suppose workers agreed to a contract that guaranteed a real wage increase of 3 percent per year.If the inflation rate was 7 percent over the following year,what is the required increase in the nominal wage to meet the contract requirements?

Suppose workers agreed to an indexed contract that increased their nominal wage by 4 percent plus 25 percent of any increase in the Consumer Price Index (CPI) .If the CPI increased by 8 percent,what would be the change in the real wage?

If prices (as measured by the CPI) tripled and nominal wages tripled,what would happen to real wages?

The formula for determining a real variable is real variable =

Which of the following would be included in the Consumer Price Index but not in the GDP Price Index?

If the price of used automobiles increased dramatically relative to all other prices,and the demand for all goods remained the same,which of the following would most likely occur?

In which of the following situations would a worker have the greatest real income?