Question 1

To calculate an annual percentage rate of inflation, take (_____) divided by the level in the previous year, then multiply by 100.

the level in the new year minus the level in the previous year

the level in the previous year minus 100

the level in the previous year minus the level in the new year

100 minus the level in the previous year

Question 2

_____ means price increases occur that span _____.

deflation; the energy industry

inflation; the entire economy

inflation; one sector of the economy

deflation; all international economies

Question 3

If the price index moves from 134 to 145, the rate of inflation is:

11.00%

145.00%

8.21%

8.65%

Question 4

If the price index moves from 248 to 298, the rate of inflation is:

16.78%

50.00%

33.93%

20.16%

Question 5

If the price index moves from 62.1 to 64.3, the rate of inflation is:

3.42%

2.20%

3.54%

19.78%

Question 6

The Consumer Price Index (CPI) is _____.

an identical measure to the Producer Price Index (PPI)

the most commonly cited measure of inflation in the United States

only capable of measuring deflation, never inflation

a measure of the investment component of GDP

Question 7

(Hint: read carefully.) _____ is occurring when the buying power of money in terms of goods and services increases.

Nonflation

Inflation

Price stability

Deflation

Question 8

Substitution bias is one of the reasons that a rise in the price of a fixed basket of goods over time tends to _____ the rise in a consumer's true cost of living.

understate

overstate

remain entirely unrelated to

perfectly measure

Question 9

In 2000, the price index is equal to 100. The price index rises to 110 in 2001; 125 in 2002; 140 in 2003; and 155 in 2004. Using that information, the annual inflation rate,

was the highest from 2001 to 2002

was equal for each one-year period discussed

was the highest from 2000 to 2001

was the highest from 2002 to 2003

Question 10

Improvements in the quality of existing goods, as well as the invention of new goods, can improve the standard of living, giving rise to the _____ bias in price indexes.

substitution

income

personal finance

quality/new goods

Question 11

The _____ curve shows _____ for domestic goods and services at each price level.

aggregate demand (AD); the total spending

aggregate demand (AD); the total quantity of output

aggregate supply (AS); foreign-made inputs

aggregate supply (AS); consumption spending

Question 12

When the economy of a country is operating close to its full capacity, cyclical unemployment is close to _____.

75

0

100

50

Question 13

The maximum quantity that an economy can produce, given its existing levels of labor, physical capital, technology, and institutions, is called

aggregate demand

aggregate supply

potential GDP

obligatory GDP

Question 14

In the AD/AS model, the SRAS curve is the _____ AS curve, where _____ in the short run.

upward-sloping; producers can change quantity supplied

downward-sloping; producers can change quantity supplied

vertically sloped; producers are limited to producing at potential GDP

horizontally sloped; producers are limited to producing at potential GDP

Question 15

In the neoclassical zone of the SRAS curve,

the curve is relatively flat

the equilibrium is far from potential GDP

prices are lower than in the Keynesian zone

only a rightward shift in AS can increase the size of the real GDP

Question 16

In the Keynesian zone of the SRAS curve,

the economy is in an expansion

the equilibrium level of real GDP is far higher than potential GDP

cyclical unemployment is high

the price level must be at its highest

Question 17

One way that inflationary pressure is shown in the AD/AS model is

a leftward shift in the SRAS curve

a rightward shift in the SRAS curve

a leftward shift in the AD curve combined with a rightward shift in the SRAS curve

a leftward shift in the AD curve

Question 18

In the AD/AS model, high cyclical unemployment would result in _____.

no possible impact on output

output that is substantially to the right of potential GDP

output that is substantially to the left of potential GDP

zero unemployment

Question 19

In the AD/AS model, a recession can be represented by

an equilibrium that falls directly on the potential GDP line

an equilibrium that is substantially to the right of the potential GDP line

an equilibrium associated with full employment in the economy

an equilibrium that is relatively far left of the potential GDP line

Question 20

Over time, increased productivity can result in a rightward shift

of only the LRAS

of neither the SRAS nor the LRAS

of only the SRAS

of both the SRAS and the LRAS