Question 1

Which one of the following groups benefits from inflation?
A) Borrowers.
B) Savers.
C) Landlords.
D) Lenders.

Accepted Answer

Borrowers benefit from inflation because the value of money reduces with inflation over time. This means that the money a borrower pays back to a lender will be worth less in real terms, making it easier for the borrower to repay their debts.

Question 2

Those hurt by inflation include:
A) labor unions with COLA clauses.
B) borrowers.
C) savers.
D) owners of real estate.
E) owners of precious metals, antiques, and works of art.

Accepted Answer

C

Question 3

Inflation is an increase in:
A) prices of all products in the economy.
B) homes, autos and basic resources.
C) the general price level of products.
D) none of the above.

Accepted Answer

Inflation refers to an overall increase in the general price level of products in an economy. It is not limited to specific products such as homes or autos, and it affects the prices of all products in the economy, not just some. Therefore, option C is the correct answer.

Question 4

Which of the following is true of inflation?
A) It is an increase in the general price level of goods and services.
B) The purchasing power of money increases as the result of inflation.
C) Inflation is similar to interest payments on future money income, such as pensions and receipts from outstanding loans.
D) Inflation has no effect on real income.

Accepted Answer

Inflation is defined as an increase in the general price level of goods and services. This means that over time, the same amount of money will buy fewer goods and services due to their increased cost. The purchasing power of money actually decreases as a result of inflation. Option B is therefore false. Option C is also incorrect since inflation is not a payment on future income, but rather a phenomenon that affects the value of money over time. Option D is false as well since inflation decreases the purchasing power of money, thereby reducing real income.

Question 5

Suppose that last year you borrowed $100 at 5 percent interest to purchase a $100 pair of Nike cross-training shoes.This year you repaid the bank with interest.If the inflation rate was 10 percent last year,your purchase of the shoes would:
A) make you an inflation winner as you saved $5 on the shoes.
B) make you an inflation loser as you paid $5 more than you should have for the shoes.
C) not be affected at all by the inflation rate.
D) be taxed according to COLA adjustments.
E) make you an inflation loser because of bracket creep.

Accepted Answer

The answer of Suppose that last year you borrowed $100...

Question 6

Inflation is defined as an increase in:
A) real wages of workers.
B) real GDP.
C) the average price level.
D) all consumer products.

Accepted Answer

Inflation refers to a general increase in the average price level of goods and services over time. It is not related to real wages or real GDP. While inflation does cause an increase in the prices of consumer products, it is not accurate to say that it affects all consumer products equally or in the same way.

Question 7

Which of the following is true about inflation?
A) Inflation promotes social harmony by uniting people against the government.
B) Inflation is more damaging if it is anticipated.
C) Accurate anticipation of inflation is possible for everyone who is well informed about economic events.
D) Those who lend money at a rate below the rate of inflation suffer economic losses.
E) If people accurately anticipate inflation, their actions will prevent it.

Accepted Answer

When inflation occurs, the value of money decreases over time. This means that when lenders loan money at a rate below the rate of inflation, they are essentially losing money since they will be paid back with less valuable currency. This is why lenders often charge higher interest rates during times of inflation.

Question 8

Losers from inflation include:
A) savers and borrowers.
B) landlords and the government.
C) borrowers and the government.
D) those on a fixed income and borrowers.
E) those on a fixed income and savers.

Accepted Answer

The answer of Losers from inflation include:
A) savers and borrowers.
B)...

Question 9

Inflation is measured by an increase in:
A) homes, autos and basic resources.
B) prices of all products in the economy.
C) the consumer price index (CPI).
D) none of the above.

Accepted Answer

Inflation is generally measured by changes in the Consumer Price Index (CPI), which tracks the prices of a basket of goods and services consumed by households. Option A is incorrect because it only includes specific sectors of the economy, and option B is incorrect because it implies that all prices increase at the same rate, which is not always the case. Option D is incorrect because inflation is a real phenomenon that affects economies around the world.

Question 10

Suppose that the consumer price index of a country was 160 at Year X and 168 at the end of Year Y.What was the country's inflation rate during Year Y?
A) 5 percent.
B) 8 percent.
C) 60 percent.
D) 68 percent.

Accepted Answer

The answer of Suppose that the consumer price index of...

Question 11

In which of the following years was inflation in the United States the highest?
A) 1960.
B) 1970.
C) 1980.
D) 1990.
E) 2007.

Accepted Answer

In 1980, the US experienced one of its worst inflation rates, with an annual rate of 13.58%. In comparison, inflation rates in 1960, 1970, 1990, and 2007 were 1.46%, 5.84%, 5.39%, and 2.85% respectively.

Question 12

Union contracts with built-in cost-of-living adjustments and home mortgages that vary with the rate of inflation are:
A) inappropriate ways of combating inflation.
B) examples of bracket creep.
C) means of implementing fiscal policy.
D) steps that can be taken to decrease the adverse impacts of inflation.
E) examples of failed discarded policies of the 1970s.

Accepted Answer

Union contracts with built-in cost-of-living adjustments and home mortgages that vary with the rate of inflation are steps that can be taken to decrease the adverse impacts of inflation. By adjusting for inflation, people are able to maintain their purchasing power and avoid the erosion of their savings or income. This helps to mitigate the negative effects of inflation on the economy and individuals.

Question 13

Tina Cole and her husband bought a deferred annuity that started paying them $700 a month in retirement benefits.They,along with millions of other people who live on fixed incomes,are examples of:
A) those who are responsible for inflation.
B) the big winners from inflation.
C) the big losers from inflation.
D) the paradox of thrift.
E) stock market losers.

Accepted Answer

Those on fixed incomes, like Tina Cole and her husband, are considered big losers from inflation because their purchasing power decreases as prices increase. The $700 they receive each month will be worth less and less over time as inflation erodes the value of their annuity payments.

Question 14

In periods of high inflation,
A) people want to hold on to as much money as possible.
B) the purchasing power of money is decreasing.
C) nobody wants to work and earn income.
D) low nominal interest rates are likely to result.
E) nobody wants to buy goods and services.

Accepted Answer

In periods of high inflation, the purchasing power of money is decreasing. This means that the same amount of money can buy fewer goods and services than before. Therefore, people may want to spend their money before it loses even more value. Holding on to money can result in losses in purchasing power. Additionally, inflation can lead to higher nominal interest rates to compensate for the loss in value of money, making it more expensive to borrow money.

Question 15

Suppose that the consumer price index (CPI)was 160 in Year X and 166 in Year Y,inflation during Year Y was approximately:
A) zero; prices were stable.
B) 3.8 percent.
C) 6 percent.
D) 66 percent.

Accepted Answer

Inflation is calculated as the percentage increase in the CPI from one year to the next. Therefore, the inflation rate between Year X and Year Y is ((166-160)/160) x 100 = 3.75 or approximately 3.8 percent.

Question 16

The best definition of inflation is a(n):
A) temporary increase in prices.
B) increase in the price of one important commodity such as food.
C) persistent increase in the general level of prices as measured by a price index.
D) increase in the purchasing power of the dollar.

Accepted Answer

Inflation refers to a persistent increase in the general level of prices, and is typically measured using a price index such as the Consumer Price Index (CPI). It is not a temporary or isolated increase in prices, nor is it limited to the price of one commodity. Additionally, inflation results in a decrease, not an increase, in the purchasing power of the dollar.

Question 17

Which of the following correctly defines inflation?
A) An increase in the price of a particular good or service.
B) An increase in the general (average) price level of goods and services in the economy.
C) The growth rate in real GDP.
D) None of the above.

Accepted Answer

Inflation refers to an increase in the general (average) price level of goods and services in the economy over a period of time. It is not limited to a particular good or service, but is a broad measure of overall price levels. Option A refers to a specific case of price increase, while Option C refers to a measure of economic growth and not inflation. Option D is incorrect as one of the options must be correct.

Question 18

Inflation:
A) reduces the cost-of-living of the typical worker.
B) is measured by changes in the cost of a typical market basket of goods between time periods.
C) causes the purchasing power of a dollar to rise.
D) has no effect on real income.

Accepted Answer

Inflation is measured by changes in the cost of a typical market basket of goods between time periods. Option A is incorrect as inflation actually raises the cost-of-living. Option C is incorrect as inflation causes the purchasing power of a dollar to decrease. Option D is incorrect as inflation affects real income by reducing its value.

Question 19

If the consumer price index (CPI)in Year X was 300 and the CPI in Year Y was 325,the rate of inflation for Year Y was:
A) 325 percent.
B) 25 percent.
C) 5 percent.
D) 8 percent.

Accepted Answer

The answer of If the consumer price index (CPI)in Year...

Question 20

An increase in the general price level is termed:
A) the Consumer Price Index.
B) inflation.
C) deflation.
D) stagflation.
E) nominal pricing.

Accepted Answer

Inflation is the term used to describe an increase in the general price level of goods and services over time.

Quiz 13: Inflation

Which one of the following groups benefits from inflation?

Those hurt by inflation include:

Inflation is an increase in:

Which of the following is true of inflation?

Suppose that last year you borrowed $100 at 5 percent interest to purchase a $100 pair of Nike cross-training shoes.This year you repaid the bank with interest.If the inflation rate was 10 percent last year,your purchase of the shoes would:

Inflation is defined as an increase in:

Which of the following is true about inflation?

Losers from inflation include:

Inflation is measured by an increase in:

Suppose that the consumer price index of a country was 160 at Year X and 168 at the end of Year Y.What was the country's inflation rate during Year Y?

In which of the following years was inflation in the United States the highest?

Union contracts with built-in cost-of-living adjustments and home mortgages that vary with the rate of inflation are:

Tina Cole and her husband bought a deferred annuity that started paying them $700 a month in retirement benefits.They,along with millions of other people who live on fixed incomes,are examples of:

In periods of high inflation,

Suppose that the consumer price index (CPI) was 160 in Year X and 166 in Year Y,inflation during Year Y was approximately:

The best definition of inflation is a(n) :

Which of the following correctly defines inflation?

Inflation:

If the consumer price index (CPI) in Year X was 300 and the CPI in Year Y was 325,the rate of inflation for Year Y was:

An increase in the general price level is termed: