Question 1

Which of the following constitutes inflation?

an increase in the average level of prices

an increase in medical care costs

an increase in the market interest rate

high prices for new homes

Question 2

If the cost of a market basket is $150 in 2004 and $200 in 2005, the price index for 2004 using 2005 as the base year is

1.33.

1.00.

0.75.

1.50.

Question 3 Skip to question text.

Which of the following statements is true?

I. Inflation refers to an increase in the average level of prices.
II. Inflation refers to the general level of prices prevailing in an economy.
III. Inflation to high prices for most goods and services.

I only

I, II, and III

I and II only

I and III only

Question 4 Skip to question text.

Economists Erica Goshen and Simon Potter note that when a layoff is temporary, the employer "suspends" the job, due to slack demand, and the employee expects to be recalled once demand picks up. With a permanent layoff, the employer eliminates the job. Which of the following statements is consistent with their observations?

Temporary and permanent layoffs create structural unemployment.

Temporary layoffs create structural unemployment while permanent layoffs create cyclical unemployment.

Temporary layoffs create cyclical unemployment while permanent layoffs create structural unemployment.

Temporary and permanent layoffs create cyclical unemployment.

Question 5 Skip to question text.
Which of the following statements is true?
I. Kalimpong experienced deflation in 2001.
II. Kalimpong experienced deflation in 2003.
III. The inflation rate fell between 2004 and 2005.

I only

I and II

II only

II and III

Question 6 Skip to question text.
Which of the following statements is true?
I. The CPI is computed using a fixed basket of goods.
II. The implicit price deflator is computed a fixed basket of goods.
III. The CPI and the implicit price deflator can be used to calculate inflation.

II and III only

I and III only

I and II only

I, II, and III

Question 7

If the nominal GDP in 2002 is $8,000 billion and the implicit price deflator is 1.4, what is the value of real GDP in 2002?

$8,000 billion

$11,200 billion

$5,714 billion

$700 billion

Question 8
The consumer price index reflects

the median price of a typical single family home.

the changes in the prices of goods and services typically purchased by consumers.

prices of all goods and services computed from the ratio of nominal GDP to real GDP.

the average level of prices for intermediate goods and services purchased by business.

Question 9
A quality-change bias in the construction of the CPI arises because

prices of most durable goods do not reflect improvements in quality of these goods.

new goods and services are routinely introduced and many of them are not incorporated into the market basket that makes up the CPI.

quality differences between the goods priced in two different periods cannot be accurately measured and deducted from the accompanying price difference between the goods.

big box stores that carry electronic goods routinely run sales to reduce their inventories before stocking new models.

Question 10

What has happened to a mechanic's real hourly wage between 1975 and 2005?

It fell by 18%.

It rose by 180%.

It fell by about 64%.

It rose by 5%.