Define the rate of inflation; Explain how the rate of inflation is calculated

An inflation rate of 3.59 percent.

An inflation rate of 3.72 percent.

A deflation rate of 3.59 percent.*

A deflation rate of 3.72 percent.

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Inflation*

Deflation

A decrease in the purchasing power of a dollar*

A rise in the purchasing power of a dollar

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6.7.0.3 Inflation:

is an increase in the cost of a given basket of goods.*

means that the price of every good and service is rising.

reduces the real value of anything expressed in dollars.*

can occur even when many goods are falling in price.*

// Content page - Reading: Changes in the Cost of Living; Reading: Price Indexes

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6.8.0.0 Identify the consequences of price instability (i.e., inflation)

Short Title: Consequences of Price Instability
6.8.0.1 During the 1970s when inflation accelerated, middle-class Americans benefited primarily because

nominal wages fell.

the value of their mortgage debts decreased in real terms.*

inflation always benefits the middle class.

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anything expressed in dollars.*

a fixed monthly pension payment.*

your full college scholarship.

// Content page - Reading: The Confusion over Inflation

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6.8.0.3 The redistribution of purchasing power due to unexpected inflation benefits:

Elderly persons on pensions with cost-of-living adjustments.

Home buyers with adjustable rate mortgages.

Students with fixed-rate educational loans.*

Lenders.

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6.8.0.4 Inflation increases uncertainty in the markets because:

sellers raise the prices of their products very gradually and predictably.

consumers must put more effort into shopping to find the best price. *

it is more difficult to stay aware of how one product compares in cost to another.*

// Content page - Reading: Why Care About Inflation; Reading: The Confusion over Inflation

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David’s real income is unchanged. *

David’s real income increased.

David’s real income decreased.

// Content Page – Reading: Computing Real Values Using Price Indexes
6.9.0.2 Kim’s nominal income is $75,000. If the consumer price index is 75, Kim’s real income is

$ 100,000 *

$ 56,250

$ 75,075

10% nominally, but only 3% in real terms

7%*in real terms, but 10% nominally*

13% nominally, but 10% in real terms

3% in real terms, but 10% nominally

// Content page - Reading: Computing Real Values Using Price Indexes

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6.10.0.0 Define the GDP price index (also known as the GDP deflator or the Implicit Price Deflator)

Short Title: Defining the GDP Price Index
6.10.0.1 If the nominal GDP is $3 trillion and the GDP deflator is 120, then what is the real GDP?

• 
  $2.5 trillion*
  
• 
  $0.25 trillion
  
• 
  $4 trillion
  
• 
  $400 trillion
  

Consumer Price Index

Core CPI

GDP Deflator*

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• 
  Consumption
  
• 
  Consumption plus Investment but not Exports
  
• 
  Consumption, Investment plus Exports minus Imports
  
• 
  Consumption, Investment, Government plus Exports minus Imports*
  

• 
  $430 billion
  
• 
  $835 billion
  
• 
  $2,063 billion
  
• 
  $2,449 billion*
  

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there was real GDP growth, but by less than 100%.*

there was real GDP growth by more than 100%.

real GDP declined.

inflation occurred.*

// Content Page – Reading: Introduction to Inflation

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6.11.0.0 Differentiate between nominal GDP and real GDP

Short Title: Nominal and Real GDP
Which of the following statements regarding nominal GDP is accurate?

The expenditure approach to GDP includes disposable income.

Nominal GDP presents a dollar amount adjusted for inflation

Nominal GDP is the value of final goods and services produced in an economy at a point in time

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is sensitive to changes in prices.*

is sensitive to changes in real output.*

can be meaningfully compared from one year to the next without price level data.

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• 
  Real GDP is defined as the total dollar value of final goods and services produced within a country in one year before adjustment for inflation.
  
• 
  Real GDP is defined as the current total dollar value of final goods and services produced within a country.
  
• 
  Real GDP is defined as the total dollar value of final goods and services produced within a country in one year after adjustment for inflation.*
  

The change in economic welfare.

The growth in the government sector.

The change in real GDP per person.

The change in real output produced.*

// Content page - Reading: Converting Nominal to Real GDP

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6.11.0.3 The difference between nominal GDP and real GDP is:

• 
  nominal GDP measures actual productivity
  
• 
  nominal GDP adjusts for inflation
  
• 
  real GDP adjusts for inflation*
  
• 
  real GDP excludes imports and exports
  

$12,500

// Content page - Reading: Converting Nominal to Real GDP

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6.11.0.5 The following table shows the production of a country’s economy in two consecutive years. What was the real GDP for year 2018?

Year	Item	Quantity Produced	Price Per Unit
2017	Oranges	1000 pounds	$1.00
2017	Haircuts	2000 haircuts	$5.00
2018	Oranges	1500 pounds	$1.50
2018	Haircuts	3000 pounds	$7.50

$16,500

$15,000

$22,500

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// Content page - Reading: Converting Nominal to Real GDP

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The national debt doubled in nominal terms during a time when the GDP Deflator increased from 200 to 300. This implies that the national debt:

is smaller in real terms.

has increased in real terms, but it has less than doubled.*

has more than doubled in real terms.

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$3 trillion.*

$4.3 trillion.

$6 trillion.

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1. 15.25 trillion Euros *

1. 9.76 trillion Euros

1. 137.5 trillion Euros

// Content page - Reading: Converting Nominal to Real GDP
6.11.a.3 If Nominal GDP is $17,000 billion and the GDP deflator is 0.75, then Real GDP is:

• 
  $22.67 billion *
  
• 
  $12.75 billion
  
• 
  $16.50 billion
  

• 
  income curve
  
• 
  inequality curve
  
• 
  Lorenz Curve*
  

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• 
  the inequality of the American capitalist system.
  
• 
  distribution of income among groups of people.*
  
• 
  the impact on unions on wage earners.
  

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horizontal axis : vertical axis*

left quintile : right quintile

vertical axis : horizontal axis

// Content page - Reading: The Lorenz Curve
6.12.0.4 Incomes rise for low-income and high-income workers, but rise more for the high-income earners. How will this change affect income inequality?
1. poverty falls, inequality rises*
1. poverty rises, inequality falls
1. no change

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6.12.0.4 When real incomes rise for the rich more rapidly than they rise for those with lower incomes?

Poverty falls but inequality rises.*

Poverty rises but inequality falls.

The Lorenz curve will reflect the change with a greater “bow.”*

The Lorenz curve will reflect the change with a smaller “bow.”

// Content page - Reading: The Lorenz Curve

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6.12.0.5 A Lorenz curve shows:

what percentage of a population has incomes below the poverty line.

how a population’s total income is distributed in relative terms among its members.*

how income mobility has changed over time.

// Content page - Reading: The Lorenz Curve

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