Exam Name___________________________________ MULTIPLECHOICE.Choosetheonealternativethatbestcompletesthestatementoranswers thequestion. 1) heconsumerpriceindex(CPI) T 1)_______ A) easurestheincreaseinthepricesofthegoodsincludedinGDP. m B) omparesthecostofthetypicalbasketofgoodsconsumedin c period1tothecostofabasketofgoodstypicallyconsumedin period2. C) omparesthecostinthecurrentperiodtothecostinareference c baseperiodofabasketofgoodstypicallyconsumedinthebase period. D) stheratiooftheaveragepriceofatypicalbasketofgoodstothe i costofproducingthosegoods.

. 2) ftheCPIbasketofgoodscost$200inthereferencebaseperiodand I 2)_______ $450inalateryear,theCPIinthelateryearequals A) 00. 3 B) 50. 2 C) 50. 4 D) 25. 2 3) fthepricelevellastyearwas220andthisyearis250,whatisthe I 3)_______ inflationratebetweenthetwoyears? A) 0percent 2 B) 2.2percent 1 C) 3.6percent 1 D) 0percent 3 4) hebiasesintheCPIincludethe T 4)_______ A) ubstitution,newgoods,andoldgoodsbiases. s B) ldgoods,unemployment,andinflationbiases. o C) ldgoods,newgoods,andqualitychangebiases. o D) ewgoods,qualitychange,andsubstitutionbiases. n 5) hichofthefollowingmeansthattheCPIoverstatestheactualinflation 5)_______ W rate? A) utletsubstitutionbias o B) ewgoodsbias n C) ualitychangebias q D) lloftheabovecausetheCPItooverstateinflation A 6) hetechniquecurrentlyusedtocalculatetheCPIimplicitlyassumes T 6)_______ thatovertimeconsumersbuy A) oodsandserviceswhosequalityimprovesattherateofgrowth g ofrealincome. B) hesamerelativequantitiesofgoodsasinabaseyear. t C) elativelymoreofgoodswhoserelativepricesarerising. r D) elativelylessofgoodswhoserelativepricesarerising. r 7) heConsumerExpenditureSurveyis________. T 7)_______ A) pdatedquarterly u B) pdatedmonthly u C) pdatedannually u D) ndertakeninfrequently u 2004 2005

Ite m Books Pens

Qu anti ty

Pric e

Qu anti ty

Pric e

10 $30 8 $50 20 $1 15 $2 8) n2004,consumersinDexterconsumedonlybooksandpens.Theprices 8)_______ I andquantitiesfor2004and2005arelistedinthetableabove.The referencebaseperiodforDextersCPIis2004.WhatisthecostoftheCPI basketin2004? A) 540 $ B) 320 $ C) 335 $ D) 430 $ 9) n2004,consumersinDexterconsumedonlybooksandpens.The I 9)_______ pricesandquantitiesfor2004and2005arelistedinthetableabove. ThereferencebaseperiodforDextersCPIis2004.WhatistheCPIin 2004? A) .00 1 B) .20 3 C) 20 3 D) 00 1 RefertotheinformationprovidedinFigure13.10belowtoanswerthequestionsthatfollow.

Figure13.10 10) efertoFigure13.10.Cost-pushinflationoccursif R A) heeconomymovesfromPointAtoPointContheaggregate t supplycurveAS1. B) heaggregatesupplycurveshiftsfromAS1toAS2. t C) heaggregatesupplycurveshiftsfromAS1toAS0. t D) heeconomymovesfromPointAtoPointBonaggregatesupply t curveAS1. 11) rightwardshiftintheaggregatedemandcurvegeneratesa A __________inflationand__________output. A) emand-pull;lower d B) ost-push;lower c C) emand-pull;higher d D) ost-push;higher c 12) suddenincreaseinthepriceofoilcausesa__________inflationand A __________output. A) emand-pull;higher d B) ost-push;higher c C) ost-push;lower c D) emand-pull;lower d 13) oraneconomytoexperiencebotharecessionandinflationatthesame F time, A) heaggregatedemandcurvemustshifttotheright. t B) heaggregatesupplycurvemustshifttotheleft. t

10)______

11)______

12)______

13)______

C) heaggregatesupplycurvemustshifttotheright. t D) heaggregatedemandcurvemustshifttotheleft. t 14) emand-pullinflationstartswith D A) nincreaseinshort-runaggregatesupply. a B) decreaseinaggregatedemand. a C) nincreaseinaggregatedemand. a D) decreaseinshort-runaggregatesupply. a 15) hichofthefollowingcouldleadtodemand-pullinflation? W A) nincreaseinthemoneywagerate a B) nincreaseinthequantityofmoney a C) nincreaseinoilprices a D) decreaseinexports a 16) demand-pullinflationinitiallyischaracterizedby A A) ecreasingrealoutputandalaborshortage. d B) ncreasingrealoutputandalaborsurplus. i C) ncreasingrealoutputandalaborshortage. i D) ecreasingrealoutputandalaborsurplus. d 14)______

15)______

16)______

17) hichoftheabovefiguresbestshowsthestartofademand-pull W inflation? A) igureA F B) igureB F C) igureC F D) igureD F 18) ost-pushinflationcanstartwith C A) decreaseinthequantityofmoney. a B) nincreaseingovernmentexpenditures. a

17)______

18)______

C) decreaseininvestment. a D) nincreaseinoilprices. a 19) tthestartofacost-pushinflation, A A) heshort-runaggregatesupplycurveshiftsrightward. t B) ricesandunemploymentarerising. p C) ealGDPincreasesfasterthanthequantityofmoney. r D) roductivityrises. p 20) nincreaseinthemoneywagerateshiftstheSAScurve________and A anincreaseinthemoneypricesofrawmaterialsshiftstheSAScurve ________. A) ightward;rightward r B) eftward;rightward l C) ightward;leftward r D) eftward;leftward l 21) tagflationischaracterizedby S A) decreaseinoutputandthepricelevel. a B) nincreaseinbothoutputandthepricelevel. a C) nincreaseintheunemploymentrateandanincreaseintheprice a level. D) neconomywhichisgrowingatarateequaltoitshistorical a averagegrowthrate. 19)______

20)______

21)______

22) ntheabovefigure,theeconomyisatpointA.Anincreaseinoilprices I thatsetsoffacost-pushinflationwillinitiallymovetheeconomyfrom pointAtopoint A) ,thatis,theeconomydoesnotchange. A B) . B C) . C D) . D 23) ost-pushinflationisaninflationthatresultsfromaninitial________. C A) ncreaseininvestment i B) ncreaseintaxes i

22)______

23)______

C) ecreaseintaxes d D) ncreaseinmoneywageratesormoneypricesofrawmaterials i 24) hichofthefollowingpriceindicescomesclosesttomeasuringthecost W oflivingofthetypicalhousehold? A) roducerpriceindex p B) DPdeflator G C) onsumerpriceindex c D) ouseholdpriceindex h 25) consumerpriceindexof160in1996withabaseyearof1982-1984 A wouldmeanthatthecostofthemarketbasket A) ose60%fromthecostofthemarketbasketinthebaseyear. r B) qualed$160in1996. e C) qualed$160in1983. e D) ose160%fromthecostofthemarketbasketinthebaseyear. r 26) ourgrandfathertellsyouthatheearned$5,000/yearinhisfirstjobin Y 1947.Youearn$35,000/yearinyourfirstjobin2007.Youknowthat averagepriceshaverisensteadilysince1947.Youearn A) orethan7timesasmuchasyourgrandfatherintermsofreal m income. B) essthan7timesasmuchasyourgrandfatherintermsofreal l income. C) essthan7timesasmuchasyourgrandfatherintermsof l nominalincome. D) timesasmuchasyourgrandfatherintermsofrealincome. 7 27) fwewanttouseameasureofinflationthatforeshadowspricechanges I beforetheyaffectpricesattheretaillevel,wewouldbaseourmeasure ofinflationon A) heproducerpriceindex. t B) hehouseholdpriceindex. t C) heconsumerpriceindex. t D) heGDPdeflator. t 28) herealwageequalsthenominalwage________theCPI,alltimes100. T A) ividedby d B) inus m C) imes t D) lus p Table8-7 NominalAverage HourlyEarnings (Dollars) $2.65 $16.15 24)______

25)______

26)______

27)______

28)______

Year

1965 2005 Thetableabovereportsthenominalaveragehourlyearningsinprivateindustryandthe consumerpriceindexfor1965and2005. 29) efertoTable8-7.Therealaveragehourlyearningsfor1965in1982R 1984dollarsequal A) 1.35. $ B) 5.19. $ C) 84.80. $ D) 8.28. $ 30) upposethatin2008allpricesintheeconomydoubleandthatallwages S 29)______

CPI(1982-1984=100) 32 196

andsalaries

havealso 30) doubled. In2008 you A) renobetterofforworseoffthanyouwerein2007asthe a purchasingpowerofyoursalaryhasremainedthesame. B) annotdeterminewhetheryouarebetterofforworseoffthanyou c werein2007,becausethepurchasingpowerofyoursalarycannot bedetermined. C) reworseoffthanyouwerein2007asyoucannolongeraffordto a buyasmanygoodsandservices. D) rebetteroffthanyouwerein2007asyoursalaryishigherthanit a wasin2007andyoucannowbuymoregoodsandservices. W 31) hichofthefollowingdescribessituationsinwhichthepersonis hurtbyinflation? A) personwhoborrowsmoneyduringaperiodwheninflationis a underpredicted B) retireewhosepensionisadjustedforinflation a C) personwholendsmoneyduringaperiodwheninflationis a over-predicted D) personpaidafixedincomeduringaninflationaryperiod a 32) finflationisperfectlyanticipated, I A) hosethatholdpapermoneylose. t B) hosethatlendmoneylose. t C) hosethatborrowmoneylose. t D) ooneintheeconomyloses. n 33) hecosttofirmsofchangingprices T A) oesnotexistifinflationisperfectlyanticipated. d B) scalledamenucost. i C) ssmallevenwhenthereisrapidinflation. i D) lloftheabove. a 34) henactualinflationislessthanexpectedinflation W A) orrowersandlendersbothgain. b B) orrowersgainandlenderslose. b C) orrowersloseandlendersgain. b D) orrowersandlendersbothlose. b 35) hecurveshowingtheshort-runrelationshipbetweenthe T unemploymentrateandtheinflationrateiscalled A) heunemploymentcurve. t B) heSargentcurve. t C) hePhillipscurve. t D) hemonetarypolicycurve. t 36) ccordingtotheshort-runPhillipscurve,theunemploymentrateand A theinflationrateare A) egativelyrelated. n B) nrelated. u C) ositivelyrelated. p D) naffectedbymonetarypolicy. u

___ ___

31)______

32)______

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 37) ccordingtotheshort-runPhillipscurve,ifunemploymentis3.2%and 37)______ A inflationis1.3%,anincreaseintheinflationratemightresultinwhichof thefollowing? A) decreaseinthedemandforlaborintheeconomy a B) returntotheoriginalinflationrateof1.3% a C) nincreaseintheunemploymentrateto3.4% a D) decreaseintheunemploymentrateto3.0% a 38) ccordingtotheshort-runPhillipscurve,whichofthefollowingwould 38)______ A resultinlowratesofunemployment? A) higherinflationrate a B) lowerinflationrate a C) eakincreasesinaggregatedemand w D)

Businesscycleeventsthatarisesolelyfromaggregatedemandshifts weak increases areemphasizedbythe in aggregat esupply 39) A) eynesianandmonetaristcycletheories. K B) eynesianandrealbusinesscycletheories. K C) onetaristandrealbusinesscycletheories. m D) oneofthemajortheories n 40) ntheKeynesianbusinesscycletheory,businesscyclesbeginwith I changesin A) hepublicsexpectationsaboutFedpolicies. t B) nflationexpectations. i C) onsumersentiment. c D) usinessconfidence. b 41) eynesusedthetermanimalspiritstorefertothe K A) rrationalbehavioroffinancialmarkets. i B) olatilityofbusinessconfidence. v C) nimalisticbehaviorofinvestors. a D) lloftheabove a 42) nmonetaristbusinesscycletheory,thefactorleadingtoabusiness I cycleischangesin A) onsumerspending. c B) etexports. n C) nvestmentspending. i D) hegrowthrateofthequantityofmoney. t 43) keyelementofthenewclassicalmodelofthebusinesscycleis A A) tickyprices. s B) ationalexpectations. r C) horizontalSAScurve. a D) andomfluctuationsintechnology. r 44) hichofthefollowingisthefactorthecreatesbusinesscyclesinthe W realbusinesscycletheory? A) changeinexpectationsaboutfuturesalesandprofits a B) changeinthegrowthrateofproductivity a C) nunexpectedchangeinaggregatedemand a D) changebytheFedinthegrowthrateofthequantityofmoney a 45) ntherealbusinesscyclemodel,thequantityofmoney I A) anchangetherealwagerate. c B) anincreasetherealinterestrate. c C) andecreasetheeffectfromtechnologyshocks. c D) asnoeffectonrealGDP. h

39)______

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46) nflationcanbedescribedas I A) flowvariable. a B) stockvariable. a C) nongoingprocessofpricelevelincreases. a D) nexcessdemandformoney. a 47) hichofthefollowingstatementsregardingthebusinesscycleis W correct? A) ealGDPcanneverexceedpotentialGDP. R B) heamountbywhichpotentialGDPexceedsrealGDPwhenthe T economyisatabelow-full-employmentequilibriumiscalledan inflationarygap. C) hebusinesscycleoccursbecauseaggregatedemandandshortT runaggregatesupplychangeatdifferentrates. D) luctuationsinaggregatedemandandinshort-runaggregate F supplyhavenoeffectonthebusinesscycle. 48) henaggregatedemandpersistentlygrowsataratethatexceedsthe W growthrateofpotentialGDP,theeconomywillexperience________. A) ersistentfull-employment p B) isingwagerates r C) slowdownintheeconomicgrowthrate a D) ersistentinflation p 49) riseinthepricelevelbecauseofanincreaseinthepriceofoil A A) ighttriggeracost-pushinflation. m B) efinitelytriggersacost-pushinflation. d C) efinitelytriggersademand-pullinflation. d D) ighttriggerademand-pullinflation. m 50) one-timeincreaseinthepriceofoilfollowedbyaone-time A increaseinaggregatedemandproduce A) one-timeincreaseinthepricelevel. a B) one-timedecreaseinthepricelevel. a C) ontinuingdemand-pullinflation. c D) ontinuingcost-pushinflation. c

46)______

47)______

48)______

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50)______

 1) C 2) D 3) C 4) D 5) D 6) B 7) D 8) B 9) D 10) B 11) C 12) C 13) B 14) C 15) B 16) C 17) A 18) D 19) B 20) D 21) C 22) D 23) D 24) C 25) A 26) B 27) A 28) A 29) D 30) A 31) D 32) A 33) B 34) C 35) C 36) A 37) D 38) A 39) A 40) D 41) B 42) D 43) B 44) B 45) D 46) C 47) C

48) D 49) A 50) A A