Question 1

The core rate of inflation excludes food and energy prices because:

Accepted Answer

Food and energy prices are highly volatile and can cause short-run fluctuations in the inflation rate, which can be misleading for policymakers. Therefore, the core rate of inflation excludes these prices to provide a more stable and accurate measure of the overall inflation rate.

Question 2

All of the following are real quantities EXCEPT the:

Accepted Answer

The billions of dollars invested in stocks is a monetary measure, not a real quantity, which refers to physical goods or tangible items.

Question 3

A nominal quantity is measured:

Accepted Answer

A nominal value is measured in terms of current dollar value.

Question 4

To compare the purchasing power of nominal wages in two different years, one must:

Accepted Answer

Nominal wages do not account for changes in the price level, so they cannot be directly compared across years. Deflating both quantities by a common price index adjusts for changes in the price level, allowing for a more accurate comparison of the purchasing power of wages between two different years.

Question 5

The CPI in 1930 equaled 0.17. The CPI in 1931 equaled 0.15. The rate of inflation between 1930 and 1931 was ______ percent.

Accepted Answer

To calculate the rate of inflation, subtract the CPI in 1930 from the CPI in 1931, divide by the CPI in 1930, and multiply by 100. ((0.15 - 0.17) / 0.17) x 100 = -0.02/0.17 x 100 = -11.76 or approximately -11.8%. Therefore, the answer is B) -11.8.

Question 6

To correct a nominal quantity for changes in the price level, one should:

Accepted Answer

To correct a nominal quantity for changes in the price level, one should divide it by a price index. This will give us the real quantity of goods/services in terms of purchasing power.

Question 7

The ______ is the rate of change of the _______.

Accepted Answer

The rate of inflation is the rate at which prices are rising, while the CPI (Consumer Price Index) is a measure of the average price of goods and services purchased by households. Therefore, the rate of inflation is the rate of change of the CPI.

Question 8

In 1929, the CPI equaled 0.171 and in 1930, the CPI equaled 0.167. These data provide evidence of a period of:

Accepted Answer

The decrease in CPI from 0.171 to 0.167 indicates a decrease in the overall price level, which is known as deflation.

Question 9

The price of a gallon of gasoline at the pump increased by 10 percent at the same time that the inflation rate was 5 percent. The nominal price of gasoline _____, and the real price of gasoline _____.

Accepted Answer

The answer of The price of a gallon of gasoline...

Question 10

Which of the following is a real quantity?

Accepted Answer

The number of tons of steel produced in 2005 is a real quantity that can be measured and expressed in units of weight. A and B are monetary values, which are nominal quantities, and D is also a nominal quantity, as the price of a barrel of oil can vary greatly depending on a variety of factors.

Question 11

Over time, the core rate of inflation should be ______ than the general rate of inflation.

Accepted Answer

The core rate of inflation excludes certain volatile items, such as food and energy prices, which tend to fluctuate more widely. By excluding these items, the core rate of inflation is generally more stable than the general rate of inflation, which includes these volatile items.

Question 12

The CPI in 1931 equaled 0.15. The CPI in 1932 equaled 0.14. The rate of inflation between 1931 and 1932 was ______ percent.

Accepted Answer

To calculate the rate of inflation between two years, we use the formula: (CPI in Year 2 - CPI in Year 1) / CPI in Year 1 x 100. Applying this formula, we get: (0.14 - 0.15) / 0.15 x 100 = -6.67, which rounds to -6.7%. Therefore, the answer is B) -6.7.

Question 13

Inflation is a measure of the ______ of prices; the CPI is a measure of the ______ of prices.

Accepted Answer

Inflation is a measure of the change in the level of prices over time, while the CPI (Consumer Price Index) is a measure of the current level of prices relative to a base year.

Question 14

A real quantity is a quantity measured:

Accepted Answer

A real quantity is measured in physical terms.

Question 15

The ______ is the rate of increase of all prices except ______.

Accepted Answer

The core rate of inflation is the rate of increase of all prices except energy and food. This is because energy and food prices tend to be more volatile and subject to seasonal fluctuations, so they are often excluded from inflation calculations to provide a more stable measure of inflation.

Question 16

A quantity measured in terms of current dollar value is called a(n) ______ quantity.

Accepted Answer

Nominal quantities are measured in terms of current dollar value, without any adjustment for inflation.

Question 17

Deflation is a situation in which the:

Accepted Answer

Deflation is characterized by falling prices of goods and services over time.

Question 18

If the CPI equaled 1.43 in 2005 and 1.56 in 2006, then between 2005 and 2006 there was:

Accepted Answer

The CPI increased from 1.43 to 1.56, indicating a general increase in prices for goods and services. This means that there was inflation between 2005 and 2006.

Question 19

The situation when the price of most goods and services are falling over time is called:

Accepted Answer

Deflation is the situation when the price of most goods and services are falling over time. Inflation, on the other hand, is the opposite, where prices are increasing over time. Disinflation refers to a decrease in the rate of inflation, and a boom is a period of economic growth and expansion.

Question 20

Which of the following is a nominal quantity?

Accepted Answer

The answer of Which of the following is a nominal...

Quiz 5: Measuring Economic Activity: Gdp and Unemployment