Inflation and CPI Quiz

What is the definition of inflation?

• A general decrease in average prices throughout an entire economy

• An increase in the price of a specific good or service

• A general increase in average prices throughout an entire economy

• A decrease in the price of a specific good or service

What is the primary way to measure inflation?

• Unemployment rate

• CPI

• Interest rate

• GDP

What is the difference between nominal values and real values?

• Real values are not affected by inflation, while nominal values are

• Nominal values are adjusted for inflation, while real values are not

• Real values have been adjusted for inflation, while nominal values have not

• Nominal values tend to go up over time, while real values do not

What is the formula to calculate the Consumer Price Index (CPI)?

• (Value of market basket in current year / Value of market basket for base year) * 100

• (Value of market basket in current year - Value of market basket for base year) / Value of market basket for base year

• (Value of market basket in current year - Value of market basket for base year) * 100

• (Value of market basket in current year / Value of market basket for base year) - 100

What is the impact of inflation on real wages?

• Increases the real value of wages

• Has no impact on real wages

• Decreases the real value of wages

• Causes wages to fluctuate

What is the impact of unexpected inflation on borrowers?

• Causes borrowers to default

• Hurts borrowers

• Has no impact on borrowers

• Helps borrowers

What is the impact of unexpected inflation on lenders?

• Hurts lenders

• Has no impact on lenders

• Causes lenders to gain more profit

• Helps lenders

What is the impact of unexpected inflation on savers?

• Helps savers

• Has no impact on savers

• Hurts savers

• Causes savers to gain more interest

What is the substitution bias in the Consumer Price Index (CPI)?

• Consumers tend to hoard products when prices go up

• Consumers tend to buy more of the same product when prices go up

• Consumers tend to buy other things instead when prices go up

• Consumers tend to stop buying altogether when prices go up

What is the quality change bias in the Consumer Price Index (CPI)?

• Changes in quality for products are always fully reflected in the CPI

• Changes in quality for products are not reflected in the CPI

• Changes in quality for products are only partially reflected in the CPI

• Changes in quality for products are only reflected in the base year of the CPI