1
Created by Boundless
Which of the following best describes a cost-push inflation scenario?
A
Global wheat supplies are destroyed, and wheat is a
necessary input for toaster pastries
B
All of these answers
C
The price of toaster pastries has been steadily rising for the
past decade
D
Due to a new, trendy diet, people are eating more toaster
pastries than ever
2
Created by Boundless
Imagine you buy five burgers, two books, and a pair of jeans each period. In period
1, burgers are $5, books are $12, and jeans are $30. In period 2, burgers are $6,
books are $14, and jeans are $28. What is the CPI based on your consumption?
A
104
B
111
C
92
D
109
3
Created by Boundless
Imagine you buy five burgers, two books, and a pair of jeans each period. In period
1, burgers are $5, books are $12, and jeans are $30. In period 2, burgers are $6,
books are $14, and jeans are $28. What is the rate of inflation you face?
A
4%
B
11%
C
0%
D
9%
4
Created by Boundless
If the Consumer Price Index in a country was 186.5 at the end of last year and
179.8 at the end of this year, the country experienced which of the following?
A
A deflation rate of 3.4 percent
B
An inflation rate of 179.8 percent
C
A deflation rate of 6.7 percent
D
An inflation rate of 6.7 percent
5
Created by Boundless
Which of the following would cause substitution bias?
6
A
HP improves the technology in one of their computer lines
B
The price of HP computers declines while the price of Dell
computers remains the same
C
HP merges with Dell
D
HP introduces a new type of tablet computer
Created by Boundless
What is a consequence of a rise in the CPI?
A
Social security payments will rise
B
Income tax brackets will shift upwards
C
Wages will rise for those covered by collective bargaining
agreements
D
All of these answers
7
Created by Boundless
The biases in the CPI can overstate inflation, because they do which of the
following?
A
Tend to include new goods and services.
B
Tend to omit quality improvements, consumer response to
changes in price, and new goods and services
C
Do not contain the price of foreign goods.
D
Incorporate consumer responses to changing relative
prices.
8
Created by Boundless
Which of the following is an advantage of the CPI over the GDP deflator?
A
It is a more accurate reflection of the changes in the cost of
living
B
It frequently changes the weights placed on different goods
and services
C
It does not suffer from substitution bias
D
9
It includes the prices of capital goods
Created by Boundless
Which of the following is an advantage of the GDP deflator over the CPI?
A
It does not suffer from substitution bias
B
It is a more accurate reflection of the changes in cost of
living
C
It measures the price changes of a fixed, representative
basket
D
It includes the prices of imported goods