## Chapter Five: Module Quiz -- Inflation

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1. Stabilization policy includes all the following goals except:

maintain full employment.
bring unemployment down to as low of a rate as possible.
maintain stable prices.
achieve high rates of growth.
All of the above are goals of stabilization policy.

2. The CPI is

the Consumer Price Index.
a price index.
an instrument used to track inflation rates and deflate nominals to reals.
all of the above

3. Suppose you have selected a bundle of goods and services to track over time. The base year is 1995, and the cost of the bundle in the base year is \$400. In 1996, the cost of the bundle was \$412. The price indices in 1995 and 1996 are, respectively,

400, 412
412, 400
100, 103
103, 100
Cannot tell from this information.

4. Suppose the CPI value for 1996 is 150, and the CPI value for 1997 is 155. Given this the inflation rate for 1997 is

0%
2.5%
3.33%
5%
None of the Above

5. Again, suppose the CPI in 1996 is 150, and the CPI in 1997 is 155. If a meal at McDonalds cost \$4 in 1996 but the same meal costs \$4.50 in 1997, in which year is the McDonalds meal cheaper in real terms?

1996
1997
The price is the same in each year.
Cannot tell from this information.

6. The inflation rates in the United States since 1983 have generally been

under 4 percent
over 5 percent
out of control

7. The main reason that we deflate nominals to reals is to

give economists something to do.
make sure all the comparisons are done in current dollars.
calculate inflation rates.
make meaningful comparisons of the prices of goods and services across years.

8. An example of the costs from unanticipated inflation is

Jerry receives a raise of 3 percent, but finds that inflation has risen 6 percent.
Betty has to pay \$3,000 more in capital gains taxes because inflation has increased the nominal value of her house.
Sarah has to run to the ATM machine more because she doesn't want to lose the high rate of interest on her saving account brought about by the high inflation.
Gary is the owner of a restaurant and has to print new menus because price went up.

9. Since 1973, real wages have hardly increased because nominal wage gains have barely kept up with inflation. But before 1973, it was more common for wage gains to exceed inflation.

True
False

10. The inflation due to the oil shocks of the mid and late 1970s can be classified as demand-pull inflation.

True
False