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Multiple Choice Quiz
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1
Inflation is:
A)An average decrease in the price level
B)A change in relative prices of goods
C)An increase in the average price level
D)A situation of rising prices of some goods
2
Which of the following is a price effect of inflation:
A)People's assets such as savings accounts lose purchasing power
B)Real estate values rise in inflation
C)An individual does not get a cost of living adjustment
D)Students are hurt harder by inflation, because tuitions are rising faster than the national rate of inflation
3
Which of the following is a negative income effect of inflation:
A)The minimum wage is not indexed to inflation
B)Seniors pay more for rising medical care services
C)Social security payments are tied to inflation
D)Real estate values rise with inflation
4
Who is hurt by inflation?
A)Investors who buy diamonds
B)Savers
C)Real estate owners
D)Borrowers
5
Sam suffers from the money illusion. This means:
A)He uses credit cards instead of cash
B)He calculates his real income before making financial decisions
C)His wage has kept up with inflation, but he complains of higher food prices
D)His wage has not keep up with inflation and his real income fell
6
The major macro consequence of inflation is:
A)The money illusion
B)An individual's loss of purchasing power
C)Some people's assets rise faster than others
D)Uncertainty
7
Hyperinflation is:
A)A severe recession
B)An increase in the average price level of 3%
C)The inflation rate remains above 200% for more than one year
D)An increase in output of 200%
8
Deflation is not desirable because:
A)Most prices are falling
B)It is associated historically with severe recessions
C)The unemployment rate falls during inflation
D)It results in the money illusion
9
The Consumer Price Index:
A)Measures the rate of output in the economy over one year
B)Is used to calculate the rate of inflation from a previous period
C)Measures the increase in wholesale prices since a base year
D)Is a measure of nominal income
10
The base year's index number is always 100 because:
A)It is the relevant starting period
B)Prices have gone up 100% from the base year
C)The sum of the prices in the base year, divided by the prices in the base year times 100 is 100
D)The base years prices are always 100% of today's prices
11
If the consumer price index is 100 in 1982 and 180 in 2003, this means:
A)Prices have gone up 80% since 1982
B)What cost on average $100 in 1982, now costs $180
C)What costs $1.00 in 1982 now costs $1.80
D)All of the above
12
Price stability in the United States is defined as:
A)The absence of hyperinflation
B)An inflation rate of 4–5%
C)A fall in the average price level
D)An inflation rate below 3%
13
Policy makers do not aim for zero % inflation because:
A)It results in a fall in unemployment
B)It is impossible to achieve
C)It may result in higher unemployment
D)It could lead to hyperinflation
14
The United States experienced deflation in:
A)WWII
B)The 1970's
C)The 1920's and 30's
D)The 1990's
15
Which of the following is not a cause of inflation?
A)An increase in the average price level
B)Too much money chasing too few goods
C)Too much demand
D)Cost push inflation





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