Inflation Practice Test

Imagine that banks lend billions of dollars at a fixed nominal interest rate of 5%. Inflation then unexpectedly increases from 2% to 4%. What is the real interest rate they are earning?

• 1%

• 2%

• 3%

• 4%

Where does the BLS derive the basket of goods and services used to construct the CPI?

• A random sample of all goods and services produced in the economy

• The goods and services typically bought by urban consumers, according to Bureau of Labor Statistics surveys

• Toods and services weighted by the ratio of expenditures on them relative to the consumption component of GDP

• The least and the most expensive goods and services in each major category of consumer expenditures

Imagine the consumer price index was 140 in 2019 and 149.1 in 2020. The economy’s inflation rate for 2020 was

• 6.1%

• 6.5%

• 9.1%

• 49.1%

Demand-pull inflation may be caused by

• a nationwide increase in consumer spending due to an increase in consumer income

• an increase in the cost for the business, which is then passed on to the consumer

• an increase in the cost for the business, which is then passed on to the consumer

• an decrease in the quantity of money that leads to higher prices

Which of the following groups suffer the most from unexpected inflation?

• borrowers of loans with a fixed interest rate

• lenders of loans with a fixed interest rate

• the wealthy

• people who have a COLA built into their wages

If the CPI increased from 80 to 84, the rate of inflation is

• 4%

• 5%

• 10%

• 20%

Unexpected inflation will

• hurt borrowers

• hurt lenders

• hurt borrowers and lenders equally

• have no effect on either borrowers or lenders

Countries with the highest inflation rates are likely to have

• highest rate of increases in the money supplies.

• lowest net exports.

• smallest money supplies.

• lowest amount of consumption nationally.

If inflation is at a meager 0.5% on annual basis, then we could assert that the economy is experiencing

• inflation

• hyperinflation

• disinflation

• paperflation

• flyingflation

What causes cost-push inflation?

• An increase in demand for goods and services

• A rise in production costs passed on to consumers

• An increase in supply

• An increase in supply