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Inflation Measurement and Adjustment: Help and Review Chapter Exam

Exam Instructions:

Choose your answers to the questions and click 'Next' to see the next set of questions. You can skip questions if you would like and come back to them later with the yellow "Go To First Skipped Question" button. When you have completed the practice exam, a green submit button will appear. Click it to see your results. Good luck!

Page 1

Question 1 1. Assume that the marginal propensity to save is 0.1. What is the maximum amount that real GDP could change if net exports increase by $15 billion?

Question 2 2. What is the real interest rate when the nominal interest rate on a bank checking account is 1%, and the rate of inflation is 2%?

Question 3 3. Which of the following is a cause of Cost-Push Inflation?

Question 4 4. If the Consumer Price Index rises from 101 to 104, which of the following statements is true?

Question 5 5. The Substitution Bias is which of the following?

Page 2

Question 6 6. When economists want to measure current production of an economy at current prices, they use which of the following?

Question 7 7. Which of the following groups of people will benefit from unexpected inflation?

Question 8 8. A retired woman lives entirely on Social Security income, while a farmer borrows money to buy a new tractor. How would inflation affect them?

Question 9 9. In year one, a worker's nominal wage is $25,000, and the CPI is 100. The following year, the worker's nominal wages stay the same, but the CPI is 105. In order to calculate the worker's real wage in year two, what needs to be done?

Question 10 10. Why do economists use real GDP?

Page 3

Question 11 11. Unexpectedly high inflation _____ savers and _____ borrowers.

Question 12 12. Assume that the marginal propensity to consume is 0.9. What is the maximum amount that real GDP could change if government expenditures increase by $1 billion?

Question 13 13. Using the chart below, which statement is true regarding wages over the three year period?

Question 14 14. If nominal GDP increased by 5.1% and real GDP increased by 2.5% last year, which of the following is TRUE?

Question 15 15. Which of the following statements is FALSE regarding the Substitution Bias?

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Question 16 16. If Mary's nominal income rises by 4%, while her real income fell by 2%, what happens to the level of prices?

Question 17 17. If $100 of new private investment gets added to the economy, and the marginal propensity to consume is 0.80, by how much will aggregate demand increase?

Question 18 18. In year one, nominal GDP is $5,000, while real GDP is $4,500. In year two, nominal GDP is $5,500, while real GDP is $4,800. What was the growth rate of real GDP between years one and two?

Question 19 19. Last year, the Consumer Price Index (CPI) was 120, and Bob's household earned $80,000. Assuming this year's CPI is 130, what would Bob's household need to earn in order to have the same purchasing power as last year?

Question 20 20. What is the formula needed to calculate real GDP growth rate?

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Question 21 21. How is a person's likelihood to save related to the simple spending multiplier?

Question 22 22. How is real GDP calculated?

Question 23 23. Why might a national wheat plague cause cost-push inflation?

Question 24 24. How do economists illustrate stagflation?

Question 25 25. What happens if the rate of inflation as reported by the Consumer Price Index is 3%?

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Question 26 26. What does the GDP deflator represent?

Question 27 27. What is the value of using real GDP?

Question 28 28. Melissa has a choice between two jobs. The first is a job is in New York City with a salary of $90,000. The other job has a salary of $80,000 per year salary in Boise, Idaho. Let's assume that the CPI is 120 in New York, while the CPI is 100 in Boise. If Melissa wants to maximize her 'real wage', which job should she choose?

Question 29 29. Nominal GDP in year one was $16,000, while nominal GDP in year two was $19,320. Real GDP was $16,000 in year one and $15,500 in year two. What does this indicate about the economy?

Question 30 30. If the nominal GDP is $5 trillion in year 1, and the real GDP is $4.5 trillion, what is the GDP deflator?

Inflation Measurement and Adjustment: Help and Review Chapter Exam Instructions

Choose your answers to the questions and click 'Next' to see the next set of questions. You can skip questions if you would like and come back to them later with the yellow "Go To First Skipped Question" button. When you have completed the practice exam, a green submit button will appear. Click it to see your results. Good luck!

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