Deck 8: The Price Level and Inflation

Question 1

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: 200; July 2003: 236; July 2004: 250
C) January 2003: 100; July 2003: 118; July 2004: 200
D) January 2003: 110; July 2003: 120; July 2004: 130
E) January 2003: 100; July 2003: 118; July 2004: 106

Answer 1

January 2003: 200; July 2003: 236; July 2004: 250

Question 2

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.

Answer 2

the overall price level, such as the consumer price index (CPI), rises.

Question 3

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.

Answer 3

100.

Question 4

Typically the consumer price index (CPI) is calculated by:

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

Question 5

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.

Question 6

Deflation is best described as:

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

Question 7

Education typically composes about:

A) 3% of the CPI
B) 5% of the CPI.
C) 10% of the CPI.
D) 15% of the CPI.
E) 20% of the CPI.

Question 8

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

A) less than 1%.
B) about 4%.
C) about 8%.
D) about 12%.
E) negative.

Question 9

Inflation occurs:

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

Question 10

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%.
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.

Question 11

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 early years, 1996-1999, 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.

Question 12

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.

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.

Question 14

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%, 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.

Question 15

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% rate from 1960 until early 2012.
C) rose at a 10% 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.

Question 16

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.
D) During the period shown, Brazil experienced higher and higher inflation with a few exceptions.
E) During the period shown, Brazil went through inflation, but the overall trend was lower and lower inflation with very rare increases.

Question 17

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

A) the Bureau of Economic Analysis.
B) the Bureau of Labor Statistics.
C) the Economic Adjustment Agency.
D) the Department of Commerce Price Index Office.
E) the Department of Vital Statistics.

Question 18

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.

Question 19

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.

Question 20

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.

Question 21

If everyone buys the same goods every year and the price of housing rises by 38%:

A) it is certain the consumer price index (CPI) has increased; and if your nominal wage has risen by less than 38%, your real wage has fallen.
B) it is certain the CPI has increased; and if your nominal wage has risen by more than 38%, your real wage has risen.
C) it is possible that the CPI has increased, but it is certain your real wage has fallen.
D) it is possible that the CPI has increased. However, it is certain your real wage has risen, if and only if, your nominal wage increased by more than 19% because housing accounts for exactly 50% of the CPI.
E) it is not possible to tell what happened to the CPI because other than for housing, we do not know what happened to the prices of any of the other goods.

Question 22

Medical care typically composes ____ of the typical consumer price index (CPI).

A) 5%
B) 7%
C) 10%
D) 12%
E) 15%

Question 23

According to the March 2012 consumer price index (CPI), the top three consumer expenditure categories are, respectively:

A) housing, transportation, and entertainment.
B) transportation, housing, and energy.
C) housing, medical care, and food and beverages.
D) transportation, housing, and medical care.
E) housing, transportation, and food and beverages.

Question 24

Your entertainment price index (EPI) was computed based on three goods: movie tickets, popcorn, and limeade. If you change the quantity of these goods from this year to next year and the prices of two of the three goods increase while the other price falls, then:

A) your EPI would definitely fall during the year in question if, and only if, you buy less of all the goods in question.
B) your EPI would definitely rise during the year in question because two of the three goods became more expensive.
C) your EPI might rise or fall, contingent on both the quantity of the goods that you bought and the prices of these goods.
D) your EPI might rise or fall, contingent only on the quantity of the goods that you bought and regardless of the prices of these goods.
E) your EPI might rise or fall, contingent only on the percentage of the market basket that these goods constituted and the percentage that each good occupied within the basket, regardless of the quantity change from year to year.

Question 25

Based on the weight of the consumer price index (CPI), the price of rental housing increases by 15% and that of owned housing by 5%. During the same year, the price of gasoline falls by 22%. We can say that:

A) the CPI would definitely fall during the year in question.
B) the CPI would definitely rise during the year in question.
C) all other factors being constant, it is likely the CPI would rise during the year in question.
D) all other factors being constant, it is likely the CPI would fall during the year in question.
E) all other factors being constant, the CPI would change by about 6% because that is the average housing change plus the average gasoline change.

Question 26

Oranges become more expensive in 2008 at Ukrop's in Charlottesville, Virginia. This means:

A) the consumer price index (CPI) will rise in 2008 if, and only if, Charlottesville is one of the 38 indexed geographic locations and oranges are one of the 8,000 goods included in the CPI.
B) the CPI will almost certainly rise in 2008, even if Charlottesville is not included, as long as oranges are included and become more expensive on average at the other indexed locations.
C) the CPI will likely fall if the average weighted price of oranges increases in the United States and the price of oranges at Ukrop's makes almost no difference in the CPI.
D) the CPI might rise or fall and the price of oranges at Ukrop's could make a very small difference in the CPI if oranges at Ukrop's are included. However, oranges would be a relatively small portion of the entire CPI, if they are included in it at all.
E) orange prices are never included in the CPI because the creator of the CPI, Milton Marquis, did not like oranges.

Question 27

In Felixania, cat food constitutes 45% of the typical basket of goods for a typical consumer, dog food constitutes 3%, and all other goods constitute the remaining 52%. Assume the price of cat food rises by 4%, the price of dog food falls by 10%, and the prices for all other goods remain constant. Based on the information given, we can definitely say:

A) because all consumers are the same, all consumers must be worse off as a result of the change.
B) because the goods included in the consumer price index (CPI) necessarily change from year to year, we can't determine the value of the new CPI.
C) if consumers get a 4% pay raise, they are worse off in terms of their real income compared to inflation as measured by the Felixanian CPI.
D) if consumers get at 4% pay raise, they are better off in terms of their real income compared to inflation as measured by the Felixanian CPI.
E) menu costs have decreased.

Question 28

If housing prices increase by 25% and the price of all other goods decreases by 22%, then:

A) the consumer price index (CPI) would definitely fall during the year in question because housing prices do not constitute the majority of the CPI.
B) the CPI would definitely rise during the year in questions because housing prices do constitute the majority of the CPI.
C) the CPI would rise by about 1.5% because housing constitutes about half of the market basket in the CPI.
D) because housing spending is considered investment, the producer price index (PPI) but not the CPI would be the only price index affected by the change.
E) the CPI would only be affected in a small way because it includes about 8,000 goods and housing is only one of the 8,000.

Question 29

In Bovania, cattle compose 48% of the consumer price index (CPI), housing composes 32%, and entertainment accounts for the remaining 20%. If, in a certain year, the price of cattle rises by 30% and the price of housing rises by 25%, then:

A) the value of the CPI must rise, no matter what happens to the price of entertainment because two-thirds of the CPI is more expensive.
B) the CPI has increased as long as the price of entertainment does not fall by more than 55%.
C) the CPI has increased, even if the entertainment in the next year is free.
D) the CPI has decreased if the price of entertainment falls by more than 27.5%.
E) it is not possible to tell what would happen to the CPI because it is certain that the goods included in the CPI must change.

Question 30

Suppose a basket of goods and services has been selected to calculate the consumer price index (CPI) and 2002 has been chosen as the base year. In 2002, the basket's cost was $76.00; in 2004, the basket's cost was $79.50; and in 2006, the basket's cost was $85.00. The value of the CPI was:

A) 100 in 2002.
B) 108 in 2004.
C) 120 in 2006.
D) at least 118 in 2007.
E) no more than 90 in 2001.

Question 31

Tofu becomes more expensive in 2008 at Safeway/Vons in Laguna Nigel, California. This means:

A) the consumer price index (CPI) will rise in 2008 if, and only if, Laguna Nigel is one of the considered 38 geographic locations and tofu is one of the 8,000 goods included in the CPI.
B) the CPI will almost certainly rise in 2008, even if Laguna Nigel is not included in the index, as long as tofu is included and becomes more expensive on average at the other locations.
C) the CPI will likely fall (in 2008) if the average weighted price of tofu increases in the United States and the price of tofu at Safeway/Vons makes almost no difference in the CPI.
D) the CPI might rise or fall (in 2008) and the price of tofu at Safeway/Vons could make a very small difference in the CPI if tofu at Safeway/Vons is included in the index. But because tofu is a relatively large portion of the entire CPI, it is most likely the CPI will rise.
E) tofu, even if included in the CPI in 2008, would make a small difference on the average weighted price of food and beverages. Food and beverages only constitute a small portion of the CPI, and hence, this would be unlikely to affect the overall CPI by any significant amount.

Question 32

If 51% of all goods in the consumer price index (CPI) became more expensive and 49% became cheaper:

A) inflation would certainly occur.
B) deflation would most likely occur.
C) inflation or deflation could occur, depending on the weight of these goods in the basket of goods and the actual percent changes.
D) deflation would certainly occur if the price of housing was one of the goods that fell.
E) inflation would occur if the goods whose prices increased did so by the same percentage as the goods whose prices decreased.

Question 33

In Felixania, cat food constitutes 45% of the typical basket of goods for a typical consumer, dog food constitutes 3%, and all other goods constitute the remaining 52%. Assume the price of cat food rises by 4%, the price of dog food falls by 10%, and prices remain constant for all other goods. Based on the information given, we can definitely say:

A) because the price of dog food fell by more than the price of cat food rose, the consumer price index (CPI) must have decreased.
B) the CPI in Felixania is more than in the previous year.
C) if consumers get a 4% pay raise, they are worse off in terms of their real income compared to inflation as measured by the Felixanian CPI.
D) because cat food is a luxury (as is dog food), consumers are certainly no worse off in terms of their real wages as measured by the Felixanian CPI.
E) menu costs have decreased.

Question 34

What is the difference between the consumer price index (CPI) and the gross domestic product (GDP) deflator?

A) Under normal circumstances, the CPI is the better measure of the overall price level.
B) If inflation is high, the CPI is the better measure of the overall price level; if inflation is low or deflation is occurring, the GDP deflator is the better measure.
C) The GDP deflator is used only during periods of deflation; the rest of the time we use the CPI to measure the overall price level.
D) If we want to examine how price changes affect the overall economy, the GDP deflator is the better measure.
E) The CPI must be equal to the GDP deflator because of the "equation of consumer homogeneity."

Question 35

Chicken becomes more expensive in 2008 at Wegmans in State College, Pennsylvania. This means:

A) the consumer price index (CPI) will rise in 2008 if, and only if, State College is one of the 38 geographic locations and chickens are one of the 8,000 goods included in the CPI.
B) the CPI will almost certainly rise in 2008, even if State College is not included, as long as chicken is included and becomes more expensive on average at the indexed locations.
C) the CPI will likely fall if the average weighted price of chicken increases in the United States and the price of chicken at Wegmans makes almost no difference in the CPI.
D) the CPI might rise or fall and the price of chicken at Wegmans could make a very small difference in the CPI if chicken at Wegmans is included in the index. However, chicken would be a relatively small portion of the entire CPI if it is included at all.
E) chicken prices are never included in the CPI because the creator of the CPI, James Gapinski, did not like chickens.

Question 36

In Bovania, milk constitutes 56% of the typical basket of goods for a typical consumer. Let's say the price of milk rises by 4% and the prices of all other goods fall by 10%. Based on the information given, we can definitely say:

A) the consumer price index (CPI) in Bovania is greater than in the previous year.
B) the CPI in Bovania is less than in the previous year.
C) if consumers get a 4% pay raise, they are worse off in terms of their real income compared to inflation as measured by the Bovanian CPI.
D) because milk is a necessity, consumers are automatically worse off no matter what pay increase they may have received.
E) shoe-leather costs have decreased.

Question 37

The value of the consumer price index (CPI) is best described as:

A) the current year prices to base year prices, holding the market basket content constant.
B) the current year prices to base year prices, including changes in the content of the market basket.
C) the base year prices to current year prices, holding the market basket content constant.
D) the base year prices to current year prices, including changes in the content of the market basket.
E) the current year quantity to base year quantity, including changes in the prices of the market basket.

Question 38

According to the consumer price index (CPI), in a particular year, the price of gasoline rises in the United States by 22%; simultaneously, the price of all food items falls by 8%. Which statement is correct?

A) If gasoline prices rise in more of the 38 geographical locations than those in which it stays the same or falls, the food price changes are irrelevant.
B) This means that the price of gasoline must have increased in more of the 38 geographical locations where the CPI is measured and food prices must have fallen in more of those 38 locations.
C) Based solely on the information given, we cannot conclude what happened to the CPI.
D) This means that the price of gasoline and food rose in every geographic location where the CPI is measured.
E) This means that the price of gasoline and food rose in every place where gasoline and food are sold in the United States during that year.

Question 39

If the price of industrial plastic injection molding machines rose by 20% and the price of oranges fell by 20%, then:

A) the Consumer Price Index (CPI) would remain unchanged.
B) the CPI would rise if oranges had a greater weight.
C) the CPI would rise because plastic injection molding machines weigh more physically per unit.
D) the CPI would fall because people buy more oranges than plastic injection molding machines.
E) the CPI would fall by the weighted value of oranges in the CPI, but because industrial plastic injection molding machines are not a consumer good, they would not affect the CPI.

Question 40

Suppose a basket of goods and services has been selected to calculate the consumer price index (CPI) and 2002 has been selected as the base year. In 2002, the basket's cost was $600; in 2004, the basket's cost was $650; and in 2006, the basket's cost was $700. The value of the CPI in 2004 was (round to one decimal place):

A) 92.3.
B) 106.3.
C) 108.3.
D) 152.0.
E) more than 155.0.

Question 41

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

A) the consumer price index (CPI) would be extremely accurate.
B) the CPI would be less accurate.
C) the gross domestic product (GDP) deflator would be more accurate.
D) the GDP deflator would be less accurate.
E) the CPI would be biased upward relative to the GDP deflator.

Question 42

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

A) typically, U.S. inflation was greater than E.U. inflation, with some very brief exceptions.
B) typically, E.U. inflation was greater than U.S. inflation, with some very brief exceptions.
C) there is no consistent relationship between U.S. and E.U. inflation.
D) typically, U.S. and E.U. inflation move together, but E.U. inflation had a much larger variance than that experienced in the United States.
E) typically, U.S. and E.U. inflation move in opposite directions and U.S. inflation had a much larger variance than that experienced by the European Union.

Question 43

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

A) U.S. inflation and E.U. inflation were directly related, but E.U. inflation was generally more than U.S. inflation.
B) U.S. inflation and E.U. inflation were inversely related, but E.U. inflation was generally more than U.S. inflation.
C) U.S. inflation and E.U. inflation were directly related, but U.S. inflation was generally more than E.U. inflation.
D) U.S. inflation and E.U. inflation were inversely related, but U.S. inflation was generally more than E.U. inflation.
E) Both the United States and the European Union experienced deflation from about mid-1980 until about mid-1986.

Question 44

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

A) (Previous Year - Current Year √ Previous Year) * 100.
B) (Current Year - Previous Year √ Previous Year) * 100.
C) (Current Year - Previous Year √ Current Year) * 100.
D) Previous Year - Current Year √ Previous Year.
E) Current Year - Previous Year √ Previous Year.

Question 45

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?

A) 5%
B) 2.5%
C) 64%
D) 164%
E) 32%

Question 46

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

A) Inflation was 20% this year.
B) Deflation was 20% this year.
C) Housing prices must have risen.
D) Inflation was 38% this year.
E) Deflation was 38% this year.

Question 47

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

A) this would be reflected in both the consumer price index (CPI) and the gross domestic product (GDP) deflator.
B) this would not be reflected in either the CPI or the GDP deflator.
C) it would mean the market basket would be automatically updated to reflect the changes.
D) this would be reflected in the GDP deflator but not the CPI.
E) menu costs would fall.

Question 48

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:

A) the price of cat food increased by exactly 14%.
B) the CPI at the beginning of last year was 215.
C) the price of dog food probably fell.
D) the CPI at the end of the year was 285.
E) the rate of inflation next year will be more than 14%.

Question 49

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:

A) the consumer price index (CPI) in Bovania is greater than in the previous year.
B) the CPI in Bovania is less than in the previous year.
C) if consumers get a 4% pay raise, they are worse off in terms of their real income compared to inflation as measured by the Bovanian CPI.
D) the gross domestic product (GDP) deflator must be higher than the CPI.
E) the GDP deflator must be less than the CPI.

Question 50

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?

A) 2005
B) 2009
C) 2011
D) 2012
E) 2003

Question 51

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

A) although U.S. inflation was generally higher in the 1970s and 1980s, that situation was reversed in the later years for the European Union.
B) inflation in both the United States and the European Union was higher in the 1990s than it was in the 1970s and 1980s.
C) deflation was a problem in the United States and the European Union in the 1990s, but inflation was a problem for both in the 1970s and 1980s.
D) U.S. and E.U. inflation both tended to be higher in the 1970s and 1980s than in the 1990s.
E) typically, while the European Union had inflation problems, the United States had deflation problems.

Question 52

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

A) The main purpose is to find out how much the price of gasoline has increased from year to year.
B) The main purpose is to find out whether more goods have increased (or decreased) in price compared to the number of goods whose price has decreased (or increased).
C) The main purpose is to find out whether the overall cost of living has changed.
D) The main purpose is to find out whether the economy has produced more goods this year than last year.
E) The main purpose is to find out whether the cost of entertainment is more expensive (or cheaper) this year than last year.

Question 53

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:

A) inflation in both nations is 10%.
B) Nation B suffers from hyperinflation.
C) both nations suffer from hyperinflation.
D) Nation A is experiencing inflation but Nation B is experiencing deflation.
E) Nation A is experiencing inflation of less than 9.3% and Nation B is experiencing inflation of less than 8.5%.

Question 54

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

A) 7.00%.
B) 80.00%.
C) 87.00%.
D) 8.75%.
E) 10.00%.

Question 55

The concept of a price index is that:

A) it is a measure of how the items included in the typical basket of goods have changed over time; it also includes price changes over time.
B) it is a measure of how the items included in the typical basket of goods have changed over time, while holding price changes constant.
C) it is a measure of how the prices included in the typical basket of goods have changed over time, holding the items in the consumption bundle constant.
D) it is an index of how much gasoline prices have increased, because all prices follow the price of gasoline.
E) it is an index of how much housing prices have changed, because housing is the most important item in the consumption bundle.

Question 56

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:

A) the hyperinflation rates of 100% or more experienced during the 1960s, 1970s, and 1980s have been replaced by moderate rates of inflation averaging about 12%.
B) the inflation of the 1960s, 1970s, and early 1980s has been replaced by deflation.
C) the deflation of the 1960s, 1970s, and early 1980s has been replaced by moderate inflation (under 10%).
D) the double-digit inflation of the 1970s and 1980s has been replaced by well-controlled inflation of less than 10%.
E) inflation now fluctuates between 0% and 20%, whereas in the 1970s and 1980s, it fluctuated more wildly and at higher rates.

Question 57

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

A) Inflation was 20% this year.
B) Deflation was 20% this year.
C) Housing prices must have fallen.
D) Inflation was 13.33% this year.
E) Deflation was 13.33% this year.

Question 58

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?

A) Michael benefits from inflation.
B) Michael does not experience inflation because he only buys tennis racquets.
C) No matter what Michael buys, he experiences inflation.
D) Michael does not benefit from inflation.
E) We can't conclude anything from the information given.

Question 59

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

A) the United States and the European Union generally experienced periods of both inflation and deflation.
B) generally, the United States experienced deflation, but the European Union experienced inflation.
C) generally, the European Union experienced more deflation than the United States did.
D) there was never a time when either the United States or the European Union experienced deflation.
E) there were brief periods of hyperinflation for both the United States and European Union in the 1970s and early 1980s.

Question 60

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

A) 20%.
B) 10%.
C) 5%.
D) 2%.
E) -4%.

Question 61

Refer to the following table to answer the next questions:
As presented in the table, the rate of inflation (or deflation) from 2001-2002 was (rounded to two decimal places):

A) 7.00%.
B) 105.00%.
C) 112.00%.
D) 6.67%.
E) 6.25%.

Question 62

Refer to the following table to answer the next questions:
As presented in the table, the approximate rate of inflation (or deflation) from 2000-2001 was (rounded to the nearest percent):

A) 7%.
B) 105%.
C) 87%.
D) 21%.
E) 17%.

Question 63

The price of a McDonald's hamburger in 1955 was $0.15 when the price index was 27; if in 2011, it was $0.89 when the price index was 220, then the inflation-adjusted price of a McDonald's hamburger in 2011 was:

A) almost exactly the same (within 10%).
B) much higher (twice or more) than 2011's actual price.
C) much lower (half or less) than 2011's actual price.
D) a bit higher than 2011's actual price (1-1.99 times as much).
E) a bit lower than 2011's actual price (0.51-0.90 times as much).

Question 64

Refer to the following table to answer the next questions:
As presented in the table, the rate of inflation (or deflation) from 2002-2003 was (rounded to two decimal places):

A) 112.00%.
B) 108.00%.
C) 4.00%.
D) -4.25%.
E) -3.57%.

Question 65

Donna Newton made $0.30 per hour in 1946 at a small restaurant in Clearfield, Pennsylvania. If the consumer price index (CPI) was 18.3 in 1946 and 202.4 in 2011 and the legal minimum wage in 2011 was $7.25, then:

A) Donna's inflation-adjusted wage would be greater than the legal minimum wage in 2011.
B) Donna's inflation-adjusted wage would be less than the legal minimum wage in 2011.
C) Donna's inflation-adjusted wage would be equal to the legal minimum wage in 2011.
D) Donna would suffer from money illusion in 2011 if her real wage rose holding her nominal wage constant.
E) because of deflation in the years between 1946 and 2011, the inflation-adjusted wage would exceed the legal minimum in 2011.

Question 66

Assume tuition at the University of Virginia cost $2,962 (per semester) in 2004 and $11,584 in 2012. If the price index was 184 in 2004 and 226 in 2012, then we could say:

A) tuition has increased more slowly than inflation.
B) tuition has increased much more rapidly than inflation.
C) tuition has increased at about the same rate as inflation.
D) nominal tuition has decreased.
E) tuition suffers from menu costs due to inflation.

Question 67

How do you convert a price of a good from an earlier time into today's price?

A) Take the earlier price and divide by today's price, then multiply by the ratio of the consumer price index (CPI) today to that of the CPI in the old year.
B) Take the earlier price and multiply by the ratio of the earlier gross domestic product (GDP) deflator to today's CPI.
C) Take today's price and divide by the earlier price in terms of the GDP deflator.
D) Take the earlier price and multiply by the ratio of today's CPI to the earlier CPI.
E) Take the earlier price and multiply by the ratio of the earlier CPI to the current CPI.

Question 68

To convert a current price of a product to its price in the past, we would take the current price of a product and:

A) divide by the current price index and then add the previous price index.
B) multiply by the ratio of the current price index to the previous price index.
C) multiply by the ratio of the previous price index to the current price index.
D) divide by the ratio of the previous price index to the current price index.
E) average the chain-weighted consumer price index (CPI) and the traditional CPI of the previous year, and then multiply the current price by the average of the two.

Question 69

In 1940 you could buy a "nickel Pepsi" for (oddly enough) a nickel. If the price index in 1940 was 14 and the 2011 price index was 221, then the inflation-adjusted price of a Pepsi would be:

A) a nickel ($0.05).
B) a dime ($0.10).
C) about 79 cents ($0.79).
D) about $1.21.
E) $0.00317.

Question 70

Donna Newton made $0.30 per hour in 1946 at a small restaurant in Clearfield, Pennsylvania. If the consumer price index (CPI) was 18.3 in 1946 and 202.4 in 2011, then Donna's inflation-adjusted wage would be:

A) $7.25 by U.S. law.
B) $0.30.
C) $2.87.
D) $0.61.
E) $3.32.

Question 71

Let's say a bottle of Dr. Wells (an actual soft drink still available but hard to obtain) cost $0.15 in 1970. If the consumer price index (CPI) in 1970 was 37.8 and the current CPI is 240, then the inflation-adjusted price of Dr. Wells would be (rounded to the nearest penny):

A) $0.0236.
B) $2.36.
C) about a dollar.
D) $0.95
E) $95.00.

Question 72

If the value of the consumer price index (CPI) in 2013 was 135 and the value of the CPI in 2012 was 117, we could correctly say that:

A) the typical basket of goods was about 18% more expensive in 2013 than in 2012.
B) the typical basket of goods was about 18% less expensive in 2013 than in 2012.
C) the typical basket of goods was about 15.4% more expensive in 2013 than in 2012.
D) the average price of all items included in gross domestic product (GDP) was about 18% more expensive in 2013 than in 2012.
E) the average price of all items included in GDP was about 15.4% more expensive in 2013 than in 2012.

Question 73

Assume tuition and fees at North Carolina State University cost $4,259 in 2004 and $7,787 in 2012. If the price index was 184 in 2004 and 226 in 2012, then we could say:

A) tuition has increased more slowly than inflation.
B) tuition has increased more rapidly than inflation.
C) tuition has increased at about the same rate as inflation.
D) nominal tuition has decreased.
E) tuition suffers from money illusion due to inflation.

Question 74

If a Hershey's chocolate bar cost $0.05 in 1921 when the price index was 18 and the same size and weight Hershey's chocolate bar cost $0.05 in 1955 when the price index was 27, then:

A) the inflation-adjusted price of the bar would be much lower than the actual price for both years.
B) the inflation-adjusted price of the bar would be much higher than the actual price for both years.
C) Hershey's has mispriced the bar due to a price confusion problem.
D) the United States must have experienced deflation during the period from 1921-1955.
E) menu costs for Hershey's were high.

Question 75

According to the textbook, the fully completed house that one could buy from the Sears catalog in 1924 would be:

A) exorbitantly expensive by today's standards, adjusting for inflation.
B) about the typical price of a house today, adjusting for inflation.
C) of abnormally low quality and hence commanding a much lower price, even when adjusting for inflation.
D) quite a good deal, even when adjusting for inflation.
E) affordable to even the poorest Americans and would help to provide "sustainable growth."

Question 76

Assume tuition at Houston Community College cost $588 (per semester) in 2004 and $813 in 2012. If the price index was 184 in 2004 and 226 in 2012, then we could say:

A) tuition has increased more slowly than inflation.
B) tuition has increased more rapidly than inflation.
C) tuition has increased at about the same rate as inflation.
D) nominal tuition has decreased.
E) tuition suffers from menu costs due to inflation.

Question 77

If the price index in 1922 was 17 and a unit of Nabisco Oreo cookies cost $0.32, and if the price index today is 220 and a unit of Nabisco Oreo cookies costs $2.99, then the inflation-adjusted price of Oreos is:

A) almost exactly the same (within 10%).
B) much higher (twice or more) than today's actual price.
C) much lower (half or less) than today's actual price.
D) a bit higher than today's actual price (1-1.99 times as much).
E) a bit lower than today's actual price (0.51-0.90 times as much).

Question 78

The ratio of Price in an Earlier Time / Price in Today's Time:

A) would be used to convert the consumer price index (CPI) to the gross domestic product (GDP) deflator.
B) would be used to convert today's price to an earlier price adjusting for inflation.
C) would be used to find the percentage of substitution bias.
D) would be used to find the percentage of the quality change bias.
E) would be used to convert an earlier price to today's price adjusting for inflation.

Question 79

Assume the price of salt increased from $0.30 in 1985 to $0.50 in 1995. If we calculate the average rate of price increase for salt over this period, we could accurately say:

A) the price of salt increased at about a 40% rate per year during this period.
B) the price of salt increased at about a 20% rate per year during this period.
C) the price of salt increased by about 20% total during this period.
D) the price of salt increased at about a 5% rate per year during this period.
E) the real price of salt definitely increased during the period.

Question 80

Assume tuition at Penn State cost $6,142 (per semester) in 2007 and $7,562 in 2012. If the price index was 207.34 in 2007 and 226 in 2012, then we could say:

A) tuition has increased more slowly than inflation.
B) tuition has increased more rapidly than inflation.
C) tuition has increased at about the same rate as inflation.
D) tuition is an inferior good.
E) tuition suffers from menu costs due to inflation.