Question

1.      Expected inflation is

a.       The inflation rate that governments require form year to year

b.      The inflation rate that consumers and businesses expect will hold for some time in the future

c.       The inflation rate that is based on GDP growth

d.      The inflation rate minus the actual growth rate

2.      COLA provisions automatically increase wages or benefits to match

a.       Inflation

b.      Disinflation

c.       Deflation

d.      The cost of living

3.      In the United States, inflation peaked around

a.       1980

b.      1982-1984

c.       1929

d.      1973

4.      Between 2000 and 2015, which of the following experienced a negative inflation rate?

a.       Gasoline

b.      College tuition

c.       Medical care

d.      Wireless phone service

5.      A dollar-amount increase that has not been adjusted for inflation is called

a.       A real increase

b.      A normal increase

c.       A net increase

d.      An inflationary increase

6.      Which goods did NOT decrease in price between 2000 and 2015?

a.       Personal computers and peripherals

b.      Alcoholic beverages away from home

c.       Television

d.      Toys

7.      In 1973, the oil embargo sparked a wage-price spiral due to higher energy costs. In 2004, with a similar spike in oil prices, there was not a corresponding wage-price spiral because

a.       Of heavy government regulation

b.      Of alternative energy sources

c.       The jump in prices did not last very long

d.      The economy avoids unanticipated inflation

8.      In the aftermath of the Great Recession

a.       The U.S., Japan and Europe are all experiencing deflation

b.      Deflation concerns have subsided in the U.S., Japan and Europe

c.       Policymakers in the U.S., Japan and Europe are working hard to avoid deflation

d.      The deflation of the early 2000’s have been reversed

9.      Core inflation is defined as

a.       Inflation that takes energy and food into account

b.      Inflation that does not take energy and food into account

c.       Inflation that takes health care and energy into account

d.      Inflation that does not take health care and energy into account

10. Inflation is

a.       One of the key measures of GDP

b.      One of the key measures of the health of an economy

c.       Generally steady from year to year

d.      Generally beneficial to countries

11. The average price level is equivalent to

a.       The price of a single good

b.      The price of a market basket of goods

c.       The price of exports

d.      The price of imports

12. What is the cost of transactions as it relates to the harm caused by inflation?

a.       The cost associated with the time and effort of managing your spending

b.      The cost of products whose prices are rising

c.       Production costs plus profit

d.      The cost of the BLS market basket

13. Between 2000 and 2015, the average rate of inflation for all goods was 2.2 percent. Which goods experienced relative price decreases during that same period?

Any goods with negative inflation rates only

Any goods with positive inflation rates higher than 2.2 percent only

Any goods with negative inflation rates or positive inflation rates higher than 2.2 percent

Any goods with negative inflation rates or positive inflation rates lower than 2.2 percent

Answer 1

1.) Expected inflation is generally defined as the expectations of inflation by various economic agents, mainly firms and households based on real economic variables in the economy. Firm and households make their decision regarding say savings or wage contracts etc based on this expected rate of inflation. So, it will be (b) : The inflation rate that consumers and businesses expect will hold for some time in the future.

2.) COLA - Cost of Living Adjustments. It is cost of living adjustment to social security benefits to counteract the effects of inflation. So, (a) : Inflation.

3.) The correct option should be (a) : 1980.

The inflation rate during 1980 was 13-14% . It was around 11% during 1973-74 . 1929 was the period of great depression, not inflation and finally during 1982-84 it was around 6%.(all data according to Bureau of Labor Statistics).

4.) The correct option should be (d) :  Wireless phone service ( from CPI data on US)

5.) A normal/nominal increase is an increase not adjusted for inflation, so it will be (b).

7.) The correct answer should be (b). In 2004 due to more competition from other parts of the world, due to new technology of extracting oil, oil prices were kept in check.

8.) Since 2015, these advances nations have come out of the blues of inflation and their economy is recovering from the 2008 crisis. So, the correct answer should be (b) Deflation concerns have subsided in the U.S., Japan and Europe.

9.) Core inflation = Headline inflation - food inflation - Energy inflation. So the correct answer should be (b) Inflation that does not take energy and food into account.

10.) It is very important for policy makers to keep inflation at moderate levels because too high inflation eats into economic growth and too low inflation can lead the economy into depression. So, (b) One of the key measures of the health of an economy.

11.) The average price is always calculated for a basket of commodities with different weightage attached to different commodities depending on proportion of income spent on each commodity. So average price is (b)The price of a market basket of goods.

12.) With inflation, both households and firms have to alter decisions related to savings and spendings. Note that this is the different from the cost of the commodity. So the cost of transactions as it relates to the harm caused by inflation (a) The cost associated with the time and effort of managing your spending.

13.) Price decrease is the another way of saying negative inflation, because positive inflation is defined as the increase in general price level in the economy. So, for a good to have price decrease is equivalent of saying negative inflation. Hence the correct answer should be (a) Any goods with negative inflation rates only.