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Inflation and Price Measurement Online Quiz Questions

Use this free practice quiz with 20 questions to review Inflation and Price Measurement, test your knowledge, and prepare for your next test or exam.

20 questions
01
Choose one
1 point

A fixed basket costs $1,000 in the base year and $1,080 in the current year. What is the price index for the current year?

  1. A

    92

  2. B

    108

  3. C

    180

  4. D

    1,080

02
True or false
1 point

True or false: In the CPI, an equal percentage price increase for housing and for an infrequently purchased item must have the same effect on the index.

  1. A

    True

  2. B

    False

03
Written response
1 point

The inflation rate falls from 7% in one year to 3% in the next, so prices continue to rise but more slowly. What is this situation called?

04
Choose all
1 point

Select all statements that correctly distinguish the GDP price index from the CPI.

  1. A

    The GDP price index includes domestically produced exports.

  2. B

    The CPI includes only goods produced domestically.

  3. C

    The GDP price index excludes imports.

  4. D

    The CPI measures prices paid by urban consumers for a market basket.

05
Fill in the blank
1 point

The inflation rate is the in a price index from one period to the next.

06
Choose one
1 point

Nominal GDP is $25 trillion and the GDP price index is 125. What is real GDP, using the index to adjust for the price level?

  1. A

    $5 trillion

  2. B

    $19 trillion

  3. C

    $20 trillion

  4. D

    $31.25 trillion

07
True or false
1 point

True or false: If the CPI falls from 150 to 147, the economy has experienced deflation over that period.

  1. A

    True

  2. B

    False

08
Written response
1 point

The price index rises from 120 to 126. What is the inflation rate? Enter the percentage-point value only; do not include the percent sign.

09
Choose all
1 point

Select all limitations of a fixed-basket price index that are described in the material.

  1. A

    Substitution bias

  2. B

    New-goods bias

  3. C

    A guarantee that every household has the same inflation rate

  4. D

    Quality-change bias

10
Fill in the blank
1 point

A measurement stated in the dollars prevailing at the time of the transaction is a . A measurement adjusted for changes in the price level is a .

11
Choose one
1 point

Which description best matches the GDP price index, also called the GDP deflator?

  1. A

    Prices paid by urban consumers for all goods and services they purchase, including imports

  2. B

    Prices of goods and services produced in the United States, including exports and excluding imports

  3. C

    Prices received by domestic producers only before goods reach consumers

  4. D

    Only food and energy prices paid by consumers

12
Open ended
1 point

In Year 1, the CPI is 120 and the nominal wage is $18.00 per hour. In Year 2, the CPI is 126 and the nominal wage is $19.08 per hour. Calculate the inflation rate, the nominal wage growth rate, the approximate real wage growth rate, and the exact Year 2 wage expressed in Year 1 purchasing power. Explain what the results imply about the worker's purchasing power.

13
Choose one
1 point

If the general price level rises while a person's dollar income remains unchanged, what happens to the purchasing power of each dollar?

  1. A

    A dollar buys fewer goods and services than before.

  2. B

    A dollar buys more goods and services than before.

  3. C

    A dollar's purchasing power is unaffected by the price level.

  4. D

    Only imported goods become cheaper when the price level rises.

14
Choose one
1 point

A fixed basket cost $1,200 in the base year and $1,260 in the current year. What is the price index for the current year, using the base year as 100?

  1. A

    95

  2. B

    105

  3. C

    120

  4. D

    150

15
True or false
1 point

True or false: Because the core CPI excludes food and energy prices, it represents the complete cost of living faced by consumers.

  1. A

    True

  2. B

    False

16
Choose one
1 point

Why would a 10% increase in housing prices generally affect the CPI more than a 10% increase in the price of an item purchased infrequently?

  1. A

    Because an infrequently purchased item always has the largest expenditure weight in the CPI.

  2. B

    Because a price change affects the CPI only if every household purchases the item.

  3. C

    Because housing generally has a larger expenditure weight in the CPI because households spend a larger share of their budgets on housing.

  4. D

    Because all price changes have exactly the same effect on the CPI.

17
Written response
1 point

What is the name of the index that measures average changes in prices received by domestic producers?

18
Choose one
1 point

A price index rises from 140 to 147. What is the inflation rate between the two periods?

  1. A

    2%

  2. B

    4%

  3. C

    5%

  4. D

    7%

19
Choose one
1 point

Prices rise by 6% in Year 1 and by 2% in Year 2. Which term best describes this pattern?

  1. A

    Deflation, because prices rise in both years

  2. B

    Disinflation, because the positive inflation rate decreases

  3. C

    No change in inflation, because prices rise in both years

  4. D

    Hyperinflation, because prices rise by more than 0%

20
Written response
1 point

A labor contract automatically increases hourly wages whenever the Consumer Price Index rises. What is this automatic adjustment arrangement called?