CPI and Inflation

Multiple Choice

The year in which the index begins is known as:

• face year

• trace year

• base year

• index value

Multiple Choice

The prices index for different commodities are always added together and divided by two.

• True

• False

• Sometimes

• All of the time

Multiple Choice

In order to measure the rate of inflation, it is necessary to measure the rate at which prices:

• differ

• increase

• decrease

• change

Multiple Choice

The index number deals with the ________changes of a number of different goods and services.

• percentage

• average

• price

• ratio

Multiple Choice

Inflation takes place when prices, on average:

• fall

• fluctuate

• remain the same

• rise

Multiple Choice

Inflation may also be described as a situation where the value of money is:

• falling

• fluctuating

• increasing

• remain the same

Multiple Choice

These are all effects of inflation EXCEPT:

• Borrowers gain at the expense of lender

• Inflation and the money supply

• It affects the distribution of income

• It affects the balance of payment

Multiple Choice

The rate of inflation is most commonly measured by use of

• a price deflator

• the GDP deflator

• the consumer price index

• all of the above

Multiple Choice

The consumer price index measures 

• the cost of buying a fixed basket of goods and services, and calculating how this cost changes from year to year

• the cost of buying a basket of goods and services, which changes from year to year depending on the price level

• the cost of buying a basket of goods and services, which changes from year to year depending on consumer tastes and preferences

• all of the above, depending on what the CPI is trying to measure

Multiple Choice

Cost of time and effort that people spend trying to counter-act the effects of inflation, such as holding less cash and having to make additional trips to the bank. This statement reflects the __________

• menu cost

• inflationary cost

• bank runs cost

• shoe-leather cost

Multiple Choice

From the perspective of lenders and borrowers, unanticipated inflation can be good/bad on any side.

• True

• False

Multiple Choice

Should central banks be concerned about low inflation rates or even deflation (negative rates of inflation?)

• Yes, because it can be harmful to the economy

• No, it reduces price level and increases the purchasing power of the people