Question

Question 34 (1 point)

Which of the following statements is true?

a	Because prices of food (like oranges) and energy products (like gasoline) are subject to wide swings that can be temporary in nature (these prices are very volatile), the Bureau of Labor Statistics (BLS) also reports the core CPI, which is the CPI less food and energy.
b	Real income is the number of dollars received as wages, rent, interest, or profit. Nominal income is not adjusted for inflation.
c	Nominal income is the purchasing power of your income (how many goods and services can actually be purchased with your income). Real income is the nominal income adjusted for inflation.
d	All of the above.
e	Only a) and b)

Question 35 (1 point)

Which of the following statements is true?

a	Anticipated inflation is much less harmful than unanticipated inflation. If inflation can be anticipated, people can plan their spending accordingly and reduce the negative effects of inflation in their activities.
b	Real income can fall even when there is an increase in nominal income if the inflation rate is higher than the percentual increase in nominal income.
c	Unanticipated inflation can cause a redistribution of real incomes and wealth.
d	All of the above.
e	Only a) and b)

Question 36 (1 point)

Which of the following statements is true?

a	If inflation is anticipated, the effects of inflation may be less severe, since wage and pension contracts may have inflation clauses (cost-of-living adjustments, COLAs) built in, and interest rates will be high enough to cover the cost of inflation to savers and lenders.
b	Social security payments are indexed to the CPI. Social security has more than 60 million beneficiaries.
c	In the US, more than 50 million workers have their salaries indexed to some price index.
d	All of the above.
e	Only a) and b)

Answer 1

34. The only correct answer is (a) regarding the core CPI. Core CPI is the consumer price index measured by excluding food and energy. This is done because the prices of food and energy are highly volatile.

The other options are incorrect because nominal income tells us about the number of dollars received as wages, interest or profit. Real income is only measured to these dollars for inflation.

Also, the actual purchasing power of the income is given by the real income and not nominal income. This is because the measure of how many goods can be bought with the given income depends on the price level in the economy which is given by inflation. And only Real GDP is adjusted for inflation.

35. All the given statements are true. This is because anticipated inflation (when the individuals in the economy know that there is going to be inflation) is much less harmful than unanticipated inflation (when there is inflation in the economy suddenly). This is because when individuals expect that there would be inflation, they adjust their activities accordingly.

The real income can decline even when nominal income is rising if the rate of increase in inflation is higher than rate of increase in nominal income.

Unanticipated inflation can cause redistribution of income and wealth. Debtors gain from inflation because they pay creditors with dollars which are much less worth in terms of purchasing power. This cause redistribution of wealth between debtors and creditors.

36. Only statement a is true in this case.

The other statements are incorrect because the social security beneficiaries are more than 50 million. Also, the number of workers who have their salaries indexed is 2 million only.