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1) The “basket” on which the CPI is based is composed of ? a. consumer production b. Products purchased by the typical consumer c. raw materials purchased by firms d. total current production e. none of these answers
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2) In 1989, the CPI was 124.0 in 1990, it was 130.7 What was the rate of inflation over this period ? a. 5.4 percent b. 30.7 percent c. You can’t tell without knowing the base year d. 5.1 percent
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3) The Phillips curve shows the relationship between inflation and what ? a. The balance of trade b. The rate of growth in an economy c. The rate of price increase d. Unemployment
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4) In the short run unemployment may fall below the natural rate of unemployment if ? a. Nominal wages have risen less than inflation b. Nominal wages have risen at the same rate as inflation c. Nominal wages have risen more than inflation d. Nominal wages have risen less than unemployment
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5) The effect of inflation on the price competitiveness of a country’s products may be offset by ? a. An appreciation of the currency b. A revaluation of the currency c. A depreciation of the currency d. Lower inflation abroad
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6) An increase in aggregate demand is more likely to lead to demand pull inflation if ? a. Aggregate supply is perfectly elastic b. Aggregate supply is Perfectly inelastic c. Aggregate supply is unit elastic d. Aggregate supply is relatively elastic
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7) Inflation ? a. Reduce the cost of living b. Reduce the standard of living c. Reduce the price of products d. Reduce the purchasing power of a rupee
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8) If workers and firms agree on an increase in wages based on their expectations of inflation and inflation turns out to be more than they expected ? a. none of these answers b. Workers will gain at the expense of firms c. neither workers nor firms will gain because the increase in wages in fixed in the labor agreement d. firms will gain at the expense of workers.
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9) Under Which of the following conditions would you prefer to be the borrower ? a. The nominal rate of interest is 12 percent and the inflation rate is 9 percent b. The nominal rate of interest is 20 percent and the inflation rate is 25 percent c. The nominal rate of interest is 5 percent and the inflation rate is 1 percent d. The nominal rate of interest is 15 percent and the inflation rate is 14 percent
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10) If inflation is 8 percent and the real interest rate is 3 percent, then the nominal interest rate must be ? a. 3/8 percent b. 5 percent c. 11 percent d. 24 percent
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11) Suppose your income rises from Rs19,000 to Rs31,000 while the CPI rises from 122 to 169 Your standard of living has likely ? a. fallen b. You can’t tell without knowing the base year c. risen d. stayed the same
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12) If there is an increase in the price of apples which causes consumers to purchase fewer kilograms of apples and more kilograms of oranges, the CPI will suffer from ? a. none of these answers b. substitution bias c. base year bias d. bias due to unmeasured quality change e. bias due to the introduction of new goods.
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13) Which of the following would probably cause the CPI to rise more than the GDP deflator in the Pakistan ? a. An increase in the price of BMWs produced in Germany and sold in the Pakistan b. An increase in the price of Peugeots produced in the Pakistan c. An increase in the price of helicopters purchased by the Pak Navy. d. An increased in the Price of domestically produced armoured vehicles sold exclusively to Iran
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14) Inflation can be measured by all of the following except the ? a. All of these answers are used to measure inflation. b. consumer price index c. Producer price index d. GDP deflector e. finished goods price index
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