Q: If the CPI in the base period is 100 and the CPI in the current period is 140, what is the percentage increase in the price level?

$$\frac{140 - 100}{100} \times 100 = 40\%$$

Q: Suppose the cost of the CPI basket in the base period is $$50 and in the current period is 70. $$What is the CPI for the current period?

$$\frac{70}{50} \times 100 = 140$$

Q: The inflation rate is calculated using which formula?

$$\text{Inflation rate} = \frac{\text{CPI this year} - \text{CPI last year}}{\text{CPI last year}} \times 100$$

Q: In an economy with only two final goods, eggs and bacon, the following data are observed for the base year (2000): Eggs: 100 units at $$1.10 each; Bacon: 50 units at 2.00 $$each. What is the cost of the CPI basket in the base year?

$$(100 \times 1.10) + (50 \times 2.00) = 110 + 100 = 210$$

Question 1

Which of the following best defines the price level in macroeconomics?

Accepted Answer

The average level of prices and the value of money in an economy.

Question 2

A persistently rising price level is known as:

Accepted Answer

Inflation

Question 3

Why is unpredictable inflation considered a problem for the economy?

Accepted Answer

It redistributes income and wealth arbitrarily and diverts resources from productive activities.

Question 4

Which of the following is NOT a consequence of high inflation according to the study materials?

Accepted Answer

Increases the real value of money

Question 5

The Consumer Price Index (CPI) measures:

Accepted Answer

The average of the prices paid by urban consumers for a fixed basket of consumer goods and services.

Question 6

If the CPI in the base period is 100 and the CPI in the current period is 140, what is the percentage increase in the price level?

Accepted Answer

$$\frac{140 - 100}{100} 	imes 100 = 40\%$$

Question 7

Which of the following best describes hyperinflation?

Accepted Answer

A situation where the inflation rate is so rapid that workers are paid twice a day because money loses its value quickly.

Question 8

What are the three main stages in constructing the CPI?

Accepted Answer

Selecting the CPI basket, conducting a monthly price survey, calculating the CPI.

Question 9

Suppose the cost of the CPI basket in the base period is $$50 and in the current period is 70. $$What is the CPI for the current period?

Accepted Answer

$$\frac{70}{50} 	imes 100 = 140$$

Question 10

The inflation rate is calculated using which formula?

Accepted Answer

$$	ext{Inflation rate} = \frac{	ext{CPI this year} - 	ext{CPI last year}}{	ext{CPI last year}} 	imes 100$$

Question 11

In an economy with only two final goods, eggs and bacon, the following data are observed for the base year (2000): Eggs: 100 units at $$1.10 each; Bacon: 50 units at 2.00 $$each. What is the cost of the CPI basket in the base year?

Accepted Answer

$$(100 	imes 1.10) + (50 	imes 2.00) = 110 + 100 = 210$$

Question 12

If the CPI in May 2021 is 269.2 and the reference base period CPI is 100, what does this indicate about the average price level?

Accepted Answer

The average price level in May 2021 is 169.2 percent higher than in the base period.

Question 13

Which component is the largest in the CPI basket according to the Consumer Expenditure Survey?

Accepted Answer

Housing

Question 14

If the cost of the CPI basket in the base period is $$100 and in the current period is 120$$, what is the inflation rate?

Accepted Answer

$$\frac{120 - 100}{100} 	imes 100 = 20\%$$

Question 15

Which of the following is a direct effect of unpredictable inflation?

Accepted Answer

Redistributes income between employers and workers, and between borrowers and lenders.

Question 16

Why is the CPI basket updated periodically?

Accepted Answer

To reflect changes in consumer spending patterns and ensure the CPI remains relevant.

Question 17

If the CPI for last year was 150 and for this year is 165, what is the inflation rate?

Accepted Answer

$$\frac{165 - 150}{150} 	imes 100 = 10\%$$

Question 18

Which of the following statements about deflation is correct?

Accepted Answer

Deflation is a persistently falling price level.

Question 19

A high inflation rate can lead to which of the following social costs?

Accepted Answer

Waste of resources due to inflation forecasting.

Price Level, Inflation, and Deflation: Concepts and Measurement

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