1. Aswer all Question
Question 1
Mary's nominal income is $4000. If the value of the consumer price index (CPI) is 200, what is
Mary's real income?
Group of answer choices
A. $8000
B. $4000
C. $2000
D. $20
Question 2
If the inflation rate is 7% and the nominal rate of interest is 4%, what is the real rate of interest?
Group of answer choices
A. 3%
B. -3%
C. 11%
D. 1.75%
Question 3
If the CPI increases from 150 to 165, what is the rate of inflation?
Group of answer choices
A. 6%
B. 5.5%
C. 10%
D. 15%
Question 4
Which of the following statements is correct?
Group of answer choices
A, Because higher quality goods cost more, the CPI adjusts for quality changes when it takes into
account the higher prices of goods.
B. Because we consume less energy as goods become more energy efficient, the CPI accounts
for improved energy efficiency by counting energy use less.
C. The CPI compares spending in different years. Because spending depends on the goods
consumed, the CPI accounts for changing consumption patterns.
D. None of the above.
Question 5
Over the last 60 years the prices of most goods have increased dramatically. For example, from
1930 to 1990 the average price for a loaf of bread rose 60 cents. This means
Group of answer choices
A. consumers are worse off now because they must spend more on goods.
B. that we need to measure the real prices of goods, adjusting for inflation, before we can tell if
consumers are better off or worse off.
C. real output has increased, because higher prices mean goods are worth more.
D. the real cost of producing bread has increased.

2. Question 6
Nominal GDP is $5000 and the price index is 250. What is real GDP?
Group of answer choices
A. $20
B. $5250
C. $2000
D. $2500
Question 7
In order to know whether consumers are better off today than in the past, economists
Group of answer choices
A. compare nominal output today to nominal output in the past.
B. compute the inflation rate, and see if it has increased.
C. adjust nominal output for inflation, and compare real output now to real output in the past.
D. all of the above.
Question 8
A decrease in the general level of prices is known as
Group of answer choices
A. inflation.
B. reflation.
C. deflation.
D. disinflation.
Question 9
If the consumer price index uses 1992 as its base year, then
Group of answer choices
A. the inflation rate in 1992 will always be measured as zero.
B. the CPI for 1992 will equal 100.
C. when we measure the CPI for any year after 1992 it will always exceed 100.
D. all of the above.
Question 10
Suppose a typical consumer bought 20 units of food and 15 units of clothes in the year 2307,
when the price per unit of food was 100 and the price per unit of clothes was 200. In 2308, when
the typical consumer bought 20 units of food and 20 units of clothes, the price of food had
increased to 110, while the price per unit of clothes remained at 200. If the base year is 2307,
what is the CPI for 2308? NOTE: Be careful to use the correct quantities. This is the tricky part!
Group of answer choices
A. 110
B. 103.33
C. 104
D. 124