1) The GDP expressed in current dollars in 1973 and 1989 is ______________ and _____________given that the CPI in 1973 is 140 and 160 in 1989.
(a) $8246b and $7864b
(b) $7456b and $6438b
(c) $1103b and $1352b
(d) $1435b and $2253b
2) According to neoclassical economists, which of the following pairs is a set of determinants of growth in an economy?
(a) Free markets and central planning
(b) Domestic savings and a steady supply of capital
(c) Regulation and free trade
(d) High investments and regulation of markets
3) The disparity between the arithmetic growth rate of food supply and the geometric growth rate of population in an economy is:
(a) A true statement
(b) A false statement
(c) A statement that requires more information for its verification
(d) None of the above
4) The vicious cycle of poverty makes it virtually impossible for developing countries to:
(a) Become rich and industrialized nations
(b) Save and invest
(c) Foster backward forward linkages between the sectors in their economies
(d) All of the above
(5) Which of the following statements about pensioners and other fixed income recipients is true?
(a) They benefit from inflation
(b) They contribute to inflation
(c) They lose from inflation
(d) Any of the above
(6) As inflation drives up the price level for goods and services, people attempt to find substitutes and adjust what they buy. The resulting substitution bias problem causes the CPI to:
(a) Discard the benefits of quality improvement in products
(b) Consistently understate the actual rate of inflation
(c) Overstate the impact of higher prices on consumers
(d) Have larger fluctuations than other price indices
(7) If the PPI in 1975 was 200 and the PPI for 1980 was 140, the rate of inflation was:
(a) 15 percent
(b) -30 percent
(c) 18 percent
(d) None of the above
(8) The rate of inflation calculated in Q#52 above measures:
(a) Inflation in the whole economy of a country
(b) Inflation in producers’ prices
(c) Inflation in wholesale prices
(d) None of the above
(9) Suppose a market basket of goods and services costs $600 in the base year and the consumer price index is currently 110. This indicates that the price of the market basket of goods and services is now:
(a) $280
(b) $578
(c) $660
(d) $535
(10) According to the BLS’ household survey, which of the following category represents the largest share of the income of the typical urban family?
(a) Food and Beverages
(b) Education
(c) Housing
(d) Health care
(11) Consider an economy with only two goods: rice and wine. In 1983, the typical family bought 4 pounds of rice at 0.50c per pound and 2 bottles of wine for $9 per bottle. In 2003, rice cost 0.75c per pound and wine cost $10 per bottle. The CPI for 2003(using 1983 as the base year) is:
(a) 100
(b) 115
(c) 120
(d) 130
(12) Which of the following would be the consequences of inflation in an economy?
(a) The average real incomes for workers would increase
(b) The average profits of businesses would increase
(c) Borrowers lose and creditors benefit
(d) Nominal investment loses value
(13) If the rate of inflation is equal to 25 percent and the nominal rate of interest is equal to 10 percent, it would be plausible to assert that:
(a) The real interest rate is less than zero
(b) Creditors lose
(c) Savers lose
(d) All of the above
(14) If the rate of inflation in a given time period turns out to be lower than lenders and borrowers anticipated, then the effect will be:
(a) A redistribution of wealth from lenders to borrowers
(b) A redistribution of wealth from borrowers to lenders
(c) A net loss in the purchasing power for lenders relative to borrowers
(d) A redistribution of wealth from savers to investors
(15) Suppose your nominal income in 2008 was 10 percent higher than the previous year. If the rate of inflation for 2008 was 7 percent, then your real income was:
(a) Increased by 7 percent
(b) Decreased by 3 percent
(c) Increased by 3 percent
(d) Increased by 10 percent
(16) In 2010 the Musbuki family earned $175,000. This year their income is $125,000. In an economy with a rate of inflation of 10 percent, we can conclude that the Hassan family’s nominal income:
(a) And real income both decreased
(b) And real income both increased
(c) Increased, but their real income decreased
(d) None of the above
(17) The real interest rate in an economy where the insurance premium is equal to zero is defined as the:
(a) Fixed interest rate on consumer loans
(b) Expected interest rate minus the rate of inflation
(c) More information is needed
(d) None of the above
(18) Demand-pull inflation is a:
(a) Consequence of inflation
(b) Cause of inflation
(c) Measurement of inflation
(d) Type of inflation
(19) Which of the following pairs is a type of inflation and a consequence of inflation in an economy?
(a) Hyperinflation and the CPI
(b) Galloping inflation and Menu costs
(c) Erosion of the value of money and speculation
(d) None of the above
(20) The cause of inflation that resulted from the sharp increase in the price of oil as a consequence of the OPEC’s action in the 1970s is best described as:
(a) Wage-price inflation
(b) Cost-push inflation
(c) Demand-pull inflation
(d) Stagflation
(21) Which of the following statements is false? During periods of hyperinflation, which of the following situations is most likely to occur in an economy?
(a) The currency is destroyed
(b) The average price level increases in excess of 100 percent per year
(c) Consumers spend money as rapidly as possible
(d) None of the above