Macro Economy Today 14th Edition Schiller Test Bank instant download all chapter

Macro Economy Today 14th Edition
Schiller Test Bank

Go to download the full and correct content document:
https://testbankdeal.com/product/macro-economy-today-14th-edition-schiller-test-ban
k/
More products digital (pdf, epub, mobi) instant
download maybe you interests ...
Macro Economy Today 14th Edition Schiller Solutions

Manual
https://testbankdeal.com/product/macro-economy-today-14th-
edition-schiller-solutions-manual/
Macro Economy Today 13th Edition Schiller Test Bank
edition-schiller-test-bank/
Macro Economy Today 13th Edition Schiller Solutions

Manual
Economy Today 14th Edition Schiller Test Bank
https://testbankdeal.com/product/economy-today-14th-edition-
schiller-test-bank/
Micro Economy Today 14th Edition Schiller Test Bank
https://testbankdeal.com/product/micro-economy-today-14th-
edition-schiller-test-bank/
Economy Today 14th Edition Schiller Solutions Manual
schiller-solutions-manual/
Macro Economy Today 14th Edition Hill Test Bank
edition-hill-test-bank/
Micro Economy Today 14th Edition Schiller Solutions

Manual
https://testbankdeal.com/product/micro-economy-today-14th-
Economy Today 15th Edition Schiller Test Bank
schiller-test-bank/
Chapter 07 Test Bank
Student: ___________________________________________________________________________
1. Inflation is
A. A rise in the price of every good but not any service.
B. An increase in relative prices of all goods and services.
C. A situation in which purchasing power increases.
D. An increase in the average level of prices of goods and services.
2. Inflation rates above 10 percent occur

A. In most countries today.
B. Rarely in the United States.
C. During wartime periods.
D. None of the other choices.
3. Inflation means
A. Specific prices are rising, and relative prices are falling.
B. Both relative prices and average prices are rising.
C. Relative prices are rising, but it is not certain what is happening to average prices.
D. Average prices are rising, but it is not certain what is happening to relative prices.
4. A decrease in the average level of prices of goods and services is

A. Deflation.
B. Recession.
C. Depression.
D. Inflation.
5. Deflation is a/an ____________ in the average level of prices of goods and services.
A. increase
B. decrease
C. stagnation
D. increase followed by a decrease
6. When there is no deflation or inflation,

A. Prices of all goods change by the same percentage.
B. Relative prices remain unchanged.
C. Average prices do not change.
D. Full employment is achieved.
7.
According to Figure 7.1 in Country A,
A. Relative prices may have been changing, but average prices were constant.
B. Relative prices were definitely constant.
C. Average prices and relative prices were definitely changing.
D. Average prices were constant, and unemployment was increasing.
8.
According to Figure 7.1, which of the following statements was definitely true about Country B?
A. Relative prices were changing.

B. The average price in general increased over the time period 1970 to 1995.
C. Real incomes were increasing.
D. The price level was about the same in 1970 and 1995.
9.
During the time period represented in Figure 7.1, Country A
A. Experienced periods of both inflation and deflation.

B. Never achieved the inflation goal set by the Full Employment and Balanced Growth Act of 1978.
C. Had no need for COLAs.
D. Experienced only inflation.
10.
In the year 1995, which of the following statements is true about the two countries
represented in Figure 7.2?
A. The countries had approximately the same rate of inflation.

B. The CPI was virtually equal in the two countries.
C. The market basket cost approximately the same in both countries.
D. Real incomes were rising at the same rate in both countries.
11. Relative price is

A. The price of one good in comparison with the price of other goods.
B. A decrease in purchasing power because of rising prices.
C. The amount of income a particular good requires.
D. The current price paid for a good or service.
12. Changes in relative prices may occur in a period of

A. Stable prices only.
B. Inflation only.
C. Deflation only.
D. Stable prices, inflation, or deflation.
13. Changes in the relative prices of two goods indicate

A. Inflation.
B. Nominal price changes adjusted for the inflation in the price of the goods.
C. That average prices for the period must not be stable.
D. Changes in the desired mix of output.
14. Which of the following functions are performed by changes in relative prices but not by
changes in average prices?
A. Computing real income from nominal income.
B. Indicating an overheating economy.
C. Signaling changes in the desired mix of output.
D. Measuring the rates of inflation.
15. If the price of iPods rises 10 percent during a year when the level of average prices rises 3
percent, the relative price of iPods compared with other goods
A. Remains constant.
B. Increases.
C. Decreases.
D. More information is required to answer this question.
16. If the price of Bluetooth headsets rises 12 percent during a year when the level of average
prices rises 13 percent, the relative price of Bluetooth headsets
B. Increases.
C. Decreases.
17. When the price of a good decreases more slowly than an index of average prices
decreases, the good's relative price
A. Has risen while its actual price has fallen.
B. And its actual price has risen.
C. And its actual price has fallen.
D. Has fallen while its actual price has risen.
18. Comparing changes in relative prices is more useful than examining average prices in
A. Determining the redistribution of income.
B. Determining the inflation rate.
C. Deflating nominal income.
D. Determining if there is deflation.
19. Which of the following explains why redistribution occurs during inflation?
A. Rising prices fail to signal desirable changes in the mix of output.
B Because all prices do not change at the same rate, people buy different combinations of goods and services and
. own different combinations of wealth.
C. Relative prices remain unchanged.
D. All loans are indexed to inflation.
20. Which of the following results from unexpected increases in the rate of inflation?
A. Decreased uncertainty.
B. Increased windfall profits to creditors who have lent large amounts of money.
C. Redistributions of income and wealth between different groups.
D. Creditors are made better off.
21. The redistributive mechanics of inflation include all of the following except
A. Price effects.
B. Income effects.
C. Wealth effects.
D. Output effects.
22. All of the following are microeconomic consequences of inflation except

A. A price effect.
B. An income effect.
C. A wealth effect.
D. A profit effect.
23. Which of the following is not true about your nominal income?
A. It is the amount of money you receive during a given time period.
B. It is measured in current dollars.
C. It is not an accurate measure of purchasing power.
D. It is the same as your real income in times of high inflation.
24. The amount of money income received in a given time period, measured in current dollars, is
A. Nominal income.
B. Real income.
C. Relative income.
D. The Consumer Price Index.
25. The term "nominal income" refers to

A. Money income adjusted for any change in the price level.
B. Real purchasing power.
C. Real purchasing power deflated for rising prices.
D. Money income measured in current dollars.
26. Real income is

A. Nominal income adjusted for inflation.
B. The amount of money income received in a given time period, measured in current dollars.
C. The use of nominal dollars to gauge changes in income.
27. Income in constant prices is

A. Nominal income.
B. Real income.
C. Bracket creep.
D. Income effect.
28. Your real income is

A. The amount of money you receive during a given time period.
B. Measured in current dollars.
C. The purchasing power of the money you receive.
D. The same as your nominal income in times of high inflation.
29. Inflation ________________ the purchasing power of money.

A. increases
B. decreases
C. does not affect
D. stabilizes
30. When the price of a product rises faster than the inflation rate,
A. Nominal incomes of the consumers of that product fall.
B. Users of that product have higher real incomes than people who do not consume the product.
C. Nominal incomes of the consumers of that product rise.
D. Real incomes of the consumers of that product fall.
31. If your rent increases from $1,000 to $1,100 over a period of one year and your income
rises from $6,000 to $7,000, your nominal income has
A. Increased, but your real income has decreased.
B. Increased, and your real income has increased.
C. Decreased, and your real income has decreased.
D. Increased, but your real income has remained the same.
32. If the price of your cell phone service increases from $70 to $105 over a period of one year
and your income rises from $1,500 to $1,525, your nominal income has
A. Increased, and your real income has increased.
B. Increased, but your real income has decreased.
33. If the cost of your gasoline purchases decrease from $150 per month to $80 over a period of
one year due to lower prices and your income decreases from $1,600 per month to $1,500
per month, your nominal income has
B. Decreased, but your real income has increased.
C. Increased, and your real income has increased.
34. If a bank has already lent money at fixed interest rates, then during a period of higher-than-
expected inflation, it experiences
A. Negative real income effects.
B. Hyperinflation.
C. Rising real interest rates.
D. Deflation.
35. If deflation is 0.5 percent per year and you receive a 1 percent decrease in your salary, then
your
A. Real income falls, but your nominal income remains unchanged.
B. Real and nominal income both fall.
C. Real income remains unchanged, but your nominal income rises.
D. Real and nominal income both rise.
36. Which of the following groups is protected from a sudden increase in inflation?
A. Borrowers who have loans at fixed interest rates.
B. Fixed-income groups.
C. Workers who receive fixed wages under multiyear contracts.
D. People who rent their homes under short-term leases in comparison with those who own their homes.
37. Which of the following is a microeconomic consequence of inflation?

A. Greater unemployment.
B. Greater real income.
C. The wealth effect.
38. Generally speaking, which of the following groups would tend to gain real income from the
wealth effects of inflation?
A. People with fixed income.
B. People who have savings accounts at fixed rates of interest.
C. People who own assets that are appreciating faster than the inflation rate.
D. People who hold all of their assets in the form of cash.
39. During a period of unanticipated inflation,

A. Debtors are better off and creditors are worse off.
B. Debtors and creditors are both better off because of lower real interest rates.
C. Individuals on fixed incomes are better off.
D. All individuals are worse off because of the level of uncertainty.
40.
According to Figure 7.3, prices and wages were rising, so
A. Sellers of output were better off than wage earners.

B. Everyone must have been worse off since the price level rose faster than incomes.
C. There were no redistributive effects of inflation.
D. The economy was experiencing stagflation.
41.
During the time period represented in Figure 7.3, the purchasing power of the average worker
A. Increased because nominal wages increased.

B. Decreased because real income decreased.
C. Stay the same because COLAs reduced purchasing power.
D. Decreased because nominal income decreased.
42. Money illusion is the

A. Use of nominal dollars rather than real dollars to gauge income or wealth.
B. Movement of taxpayers into higher tax brackets as nominal income increases.
C. Focus on real dollars rather than nominal dollars to determine purchasing power.
D. Uncertainty that occurs because of inflation.
43. A friend tells you that his income has risen every year by 5 percent. At the same time, prices, on
average, have risen by 5 percent. Your friend claims he is better off. Your friend
A. Is experiencing money illusion.
B. Really is better off as he suggests.
C. Has experienced an increase in nominal and real income.
D. Has experienced an increase in real income only.
44. When people make decisions on the basis of the face value of currency rather than the real
value, their decisions reflect
A. The price effect of inflation.
B. The income effect of inflation.
C. The wealth effect of inflation.
D. Money illusion.
45. All of the following are macroeconomic effects of inflation except
A. Uncertainty.
B. Speculation.
C. Bracket creep.
D. Lower taxes.
46. All of the following push a country inside its production possibilities curve except
A. A sudden burst of inflation that has not been anticipated.
B. A sudden burst of deflation that has not been anticipated.
C. The withholding of resources from the production process because of speculation.
D. An increase in labor force participation.
47. Which of the following is a macro consequence of a sudden increase in the average level of
prices?
A. People on fixed incomes suffer.
B. Uncertainty is greater.
C. Nominal income falls by a smaller percentage than real income.
D. People lengthen their time horizons.
48. Inflation affects production decisions because it

A. Decreases input costs.
B. Reduces speculation.
C. Causes businesses to focus more on the future.
D. Causes businesses to be more cautious since the future is uncertain.
49. The uncertainty that results from inflation causes changes in

A. Consumption, saving, and investment behavior.
B. Saving and investment behavior, but not consumption.
C. Consumption, but not saving and investment behavior.
D. Income, but not consumption.
50. Hyperinflation is
A. An inflation rate in excess of 200 percent, lasting at least one year.
B. An inflation rate in excess of 20 percent, lasting at least one year.
C. A common problem in the United States.
D. The movement of taxpayers to higher tax brackets because of rising prices.
51. Which of the following is a likely macroeconomic consequence of inflation?

A. Focus on long-term planning.
B. Speculation.
C. Antitrust issues.
52. Speculation during periods of inflation can result in all of the following except
A. People buying resources for resale later, rather than using the resources for current production.
B. A movement inward from the production possibilities curve.
C. People buying gold, silver, jewelry, and the like instead of capital for production.
D. More resources going into the production process.
53. The movement of taxpayers into higher tax brackets as nominal incomes grow is
A. Bracket leap.
B. Bracket hike.
C. Bracket creep.
D. Inflation hike.
54. Last year you earned $20,000 and paid taxes in the second tax bracket at 15 percent. This year
you earned $25,000, the extra $5,000 just compensating you for inflation. However, this year
you paid taxes in the third bracket at 20 percent. This illustrates the concept of
A. Stagflation.
B. Speculation.
C. Deflation.
D. Bracket creep.
55. During a period of deflation,
A. The price level rises.
B. People on fixed incomes are better off.
C. People who hold cash are worse off.
D. Lenders are worse off.
56. If the price level is falling, all of the following are true except
A. Lenders are better off.
B. Businesses are reluctant to borrow money.
C. Purchasing power increases.
D. Borrowers are not affected.

A. Time horizons are longer.
B. Consumer confidence increases.
C. Lenders are better off.
D. Borrowers are better off.
58. The Consumer Price Index is

A. A measure of changes in the average price of all goods and services.
B. A measure of changes in the average price of consumer goods and services.
C. Used to measure the impact of business speculation on consumers.
D. The impact felt by consumers who move into a higher tax bracket because of inflation.
59. Which of the following measures changes in the average price of consumer goods and
services?
A. Inflation rate.
B. CPI.
C. Deflation rate.
D. Market basket.
60. To construct the Consumer Price Index, the Bureau of Labor Statistics must
A. Find out what people buy with their incomes and how the prices of what they buy change.
B. Find out why people buy, what they buy, and how the prices of what they buy change.
C. Find out what is in the typical consumer market basket on the basis of what producers produce.
D. Conduct producer surveys to determine how much prices rise.
61. To compute the real income of a household, the index that should be used is the
A. Producer Price Index (PPI).
B. Consumer Price Index (CPI).
C. GDP deflator.
D. Cost of Living Adjustment (COLA).
62. The inflation rate is the

A. Monthly percentage rate increase in the price of all goods and services.
B. Annual percentage rate increase in tax brackets.
C. Annual percentage rate increase in the average price level.
D. Monthly adjustment of wages to the cost of living.
63. A sudden increase in inflation, ceteris paribus,

A. Raises the real income of lenders relative to borrowers.
B. Raises the CPI and reduces real income.
C. Reduces the nominal income of those who have constant real incomes.
D. Makes everyone worse off.
64. Assume the CPI increases from 110 to 121, and Manny's nominal income increases from
$100,000 to $120,000 over the same period. Manny's real income has
A. Increased by approximately 12 percent.
B. Increased by approximately 9 percent.
C. Decreased by approximately 8 percent.
D. Remained the same.
65. If the CPI increases from 110 to 125 for one year, the rate of inflation for that year is
A. 15 percent.
B. 13.6 percent.
C. 1.13 percent.
D. 50 percent.
A. 13 percent.
B. 10 percent.
C. 25 percent.
D. 15 percent.
67. At the beginning of 2006 the CPI was 216.2. At the beginning of 2007, it was 225.1. What was
the rate of inflation in 2006?
A. 4.9 percent.
B. 4.1 percent.
C. 3.6 percent.
D. 8.9 percent.
68. At the beginning of 2000, the CPI was 159.3. At the beginning of 2001, it was 177.6. What was
the approximate rate of inflation in 2000?
A. 7.6 percent.
B. 18.3 percent.
C. 10.0 percent.
D. 11.5 percent.
69. If the Consumer Price Index rose from 180.9 in 2005 to 418.5 in 2015, what is the
total percentage change in prices over this 10-year period?
A. 131.34 percent.
B. 18.5 percent.
C. 80.9 percent.
D. 127.21 percent.
70. If a price index changed from 150 in 2008 to 148.5 in 2009, while Jim Bob's nominal wage
fell from $25 to $24, then Jim Bob is
A. Better off like everyone else in the economy since prices are lower for consumers.
B. Neither better nor worse off since his real wage remained constant.
C. Better off since his nominal wage fell slower than the price level did.
D. Worse off since his nominal wage fell faster than the price level did.
71. For the CPI, the market basket is expressed in terms of what the goods cost in
A. 1929.
B. 2000.
C. The base period.
D. The optimal period.
72. The base period is the

A. Time period used for comparative analysis.
B. Absence of significant changes in the average price level.
C. Time period when full employment is reached.
D. First year in which inflation figures were calculated.
73. The base period used in computing a price index is

A. The year in which prices were at their lowest level.
B. The year in which prices were at their average level.
C. A fixed reference year from which meaningful comparisons can be made.
D. The earliest year for which data are available.
74. Item weight is the

A. Measure of how much consumers demand a particular item.
B. Percentage of the typical consumer's budget spent on a particular item.
C. Significance placed on a particular item by the wealthiest households.
D. Physical weight of a good or service.
75. The percentage of total expenditure spent on a specific product is called
A. Core inflation.
B. A market basket.
C. A budget.
D. The item weight.
76. The Producer Price Index (PPI) is the best index to measure average price changes faced
by
A. Consumers.
B. Producers.
C. Importers.
D. Labor unions negotiating COLAs.
77. If you were interested in charting prices of resources used by producers of energy, which of
the following would you use?
A. The Producer Price Index (PPI).
B. The Consumer Price Index (CPI).
C. The GDP deflator.
D. The Cost of Living Adjustment (COLA).
78. Which of the following is often watched closely as a clue to potential changes in consumer
prices in the future?
A. The CPI.
B. The PPI.
D. The COLAs.
79. The GDP deflator

A. Is the price index based on a fixed basket of goods and services for the government.
B. Is the best measure of inflation for consumers.
C. Reflects the price changes felt by producers but not consumers.
D. Is the broadest price index, covering all output.
80. The price index that refers to all final goods and services produced in a country is the
A. GDP deflator.
B. PPI.
C. CPI.
D. GDP inflator.
81. Which of the following is not true for the GDP deflator?
A. It is based on a fixed basket of goods and services.
B. It refers to all goods and services produced in GDP.
C. It typically reveals a lower inflation rate than the CPI.
D. It reflects both price changes and market responses.
82. At the beginning of 1989, the GDP deflator was 93.6. At the end of 2004, it was 189.2. What
was the total percentage change in prices over this 15-year period?
A. 98.9 percent.
B. 102.14 percent.
C. 59.6 percent.
D. 150.0 percent.
83. The best price index to use in calculating real GDP is

A. Any of the indexes because they all reflect price level changes.
B. The CPI.
C. The PPI.
D. The GDP deflator.
84. Which of the following reflects changes in expenditure patterns as well as price changes?
A. The CPI.
B. The PPI.
D. The COLA.
85. Nominal GDP is the
A. Price index that refers to all goods and services included in GDP.
B. Value of final output produced using American-owned factors of production.
C. Value of final output produced, measured in current prices.
D. Value of final output produced, adjusted for changing prices.
86. Real GDP is the

A. Value of final output produced, adjusted for changing prices.
B. Value of final output produced, measured in current prices.
C. Income earned by current factors of production.
D. GDP minus depreciation.
87. If nominal GDP is constant, then the GDP deflator varies inversely with
A. The unemployment rate.
B. Real GDP.
C. COLAs.
D. The CPI.
88. If nominal GDP is $9,600 billion and the GDP deflator is 118.5, real GDP is
A. $6,586.7 billion.
B. $10,852.7 billion.
C. $3,657.0 billion.
D. $8,101.3 billion.
89. Based on Table 7.1, the rate of inflation between 2002 and 2003 using the CPI was
A. 1.5 percent.
B. 2.2 percent.
C. 6.2 percent.
D. 4.1 percent.
90. Based on Table 7.1, the rate of inflation between 2003 and 2004, using the GDP deflator,
was
A. 2.4 percent.
B. 2.9 percent.
C. 6.2 percent.
D. 4.1 percent.
91. Based on Table 7.1, the real GDP for 2003 was
B. $6,811.7 billion.
A. 2.65 percent.
B. 2.58 percent.
C. 3.40 percent.
D. 2.02 percent.
was
A. 1.62 percent.
B. 2.68 percent.
C. 4.91 percent.
97. In the Full Employment and Balanced Growth Act of 1978, price stability means that
A. There is zero inflation each year.
B. Inflation is less than 5 percent per year.
C. The inflation rate is the same each year.
D. Inflation is less than 3 percent per year.
98. If some specific prices fall, some relative prices rise, and average prices remain unchanged,
there has been a period of
A. Stable price levels.
B. Inflation.
C. Deflation.
D. Disinflation.
99. In the Full Employment and Balanced Growth Act of 1978,

A. Congress set an inflation goal of no more than 3 percent.
B. The president set an inflation goal of 0 percent.
C. Alan Greenspan set an inflation goal of 0 percent.
D. An unemployment goal of 4 percent was set, but no inflation goal could be set.
100 Price stability

. A. Is defined as a 0 percent rate of inflation in the Full Employment and Balanced Growth Act of 1978.
B. Is targeted at a 3 percent rate of inflation by Alan Greenspan, the head of the Federal Reserve.
C. Has been officially set by Congress at 3 percent or less.
th
D. Has been achieved consistently in the 20 century in the United States.
101 An inflation goal set at a low rate but greater than zero allows all of the following except
. A. The economy to achieve both full employment and price stability at the same time.
B. For errors because of new products.
C. For price increases caused by quality improvements.
D. The Fed to meet less often.
102 If the CPI doesn't measure product quality improvements, the CPI tends to
. A. Understate the inflation rate.
B. Overstate the inflation rate.
C. Understate economic growth.
D. Be artificially low.
103 Which one of the following statements about the United States is true?
. A. Prior to World War II, the United States experienced periods of both deflation and inflation.
B. The United States has experienced inflation virtually every year since 1800.
C. Since World War II, the United States has experienced deflation.
D Prior to World War II, the United States experienced deflation virtually every year; since World War II, the United
. States has consistently experienced inflation.
104 All of the following statements about inflation in the United States are correct except
. A. Since the Great Depression, average prices have risen almost every year.
B. The inflation rate was 13.5 percent in 1980.
C. Prior to World War II, the United States experienced periods of both deflation and inflation.
D. Inflation was at its worst during the Great Depression.
105 If consumers attempt to buy more goods than the economy can produce, the result is
. A. Unemployment.
B. Demand-pull inflation.
C. Cost-push inflation.
D. The wealth effect.
106 If the economy is producing at capacity and consumers are willing and able to buy more, this
. may cause
A. Demand-pull inflation.
B. Cost-push inflation.
C. Supply-side inflation.
D. The price effect.
107 When natural disasters, such as hurricanes on the U.S. Gulf Coast or an earthquake in Japan,
. disrupt supply chains and push up the costs of production, this may result in
A. Labor-push inflation.
C. Wage-pull inflation.
D. Cost-push inflation.
108 When production costs increase and producers raise output prices, the result is
. A. The price effect.
B. Unemployment.
D. Demand-pull inflation.
109 If OPEC raises the price of oil and production costs increase, this may cause
. A. Cost-push inflation.
C. Hyperinflation.
D. Super-pull inflation.
110 A COLA is
. A. A mortgage that adjusts the nominal interest rate to changing rates of inflation.
B. A price index that refers to all goods and services included in GDP.
C. An automatic adjustment of nominal income to the rate of inflation.
D. An inflation rate of at least 200 percent, lasting more than one year.
111 Cost-of-living adjustments

. A. Reduce the price effect of inflation.
B. Allow individuals to maintain their purchasing power during inflation.
C. Cause individuals to shorten their time horizons.
D. Maintain constant real interest rates.
112 A mortgage that adjusts the nominal interest rate to changing rates of inflation is
. A. An ARM.
B. A PPI.
C. A GDM.
D. A COLA.
113 When inflation suddenly increases, ARMs

. A. Protect against rising real interest rates.
B. Protect the purchasing power of workers'wages.
C. Protect borrowers against the effects of inflation.
D. Maintain a stable real interest rate.
114 The real interest rate is

. A. The difference between the prime rate and the rate charged by the government (the Federal Reserve) on loans.
B. The nominal interest rate minus the anticipated rate of inflation.
C. The inflation rate minus the percentage increase in average wages.
D. The sum of inflation rates and unemployment rates.
115 All of the following are true of the real interest rate except it
. A. Is equal to the nominal interest rate minus the anticipated rate of inflation.
B. Is stabilized by ARMs.
C. Is the inflation-adjusted rate of interest.
D. Equals the foreign exchange rate minus the inflation rate.
116 If the nominal interest rate is 13 percent and the anticipated rate of inflation is 8 percent, the real
. interest rate is
A. 13 percent.
B. 21 percent.
C. 5 percent.
D. -5 percent.
117 If the nominal interest rate is 6 percent and the anticipated rate of inflation is 6 percent, the real
. interest rate is
A. 6 percent.
B. 12 percent.
C. 3 percent.
D. 0 percent.
118 If the nominal interest rate is 10 percent and the real interest rate is 6 percent,
. A. The expected rate of inflation is 4 percent.
B. The expected rate of inflation is 6 percent.
C. Real GDP must exceed nominal GDP.
D. Nominal GDP equals real GDP.
119
.
Using Figure 7.4, expected inflation was
A. Greater during the period from 1970 to 1975 than it was during the period from 1980 to 1985.
B. The same in 1970 and 1995.
C. Greater in 1970 than in 1995.
D. Greater during the period from 1980 to 1985 than it was during the period from 1970 to 1975.
120
.
For the economy represented in Figure 7.4, which of the following statements is definitely true?
A. Anticipated inflation was greater than actual inflation.

B. Actual inflation was greater than anticipated inflation.
C. Inflation was anticipated.
D. Inflation occurred.
121
.
Consider the economy represented in Figure 7.4. If actual inflation was greater than anticipated
inflation,
A. Borrowers would experience a decrease in real income.

B. Lenders would experience a decrease in real income.
C. Lenders would experience an increase in real income.
D. The Federal Reserve would be forced to step in to increase lending.
122 The most fundamental function of prices in a market economy is to provide

. A. The data necessary to calculate rates of inflation.
B. The basis for the calculation of sales tax.
C. Information about the relative scarcities of resources and goods and services.
D. Maximum profits to producers.
123 The most desirable inflation rate is the rate that

. A. Equals the official goal of 3 percent.
B. Has the least effect on the behavior of companies, investors, consumers, and workers.
C. Maximizes the "wealth effect" of inflation.
D. Coincides with an unemployment rate of 0 percent.
124 The amount of money income received in a given time period, measured in current dollars, is
. A. Nominal income.
B. Fixed income.
C. Real income.
D. Asset income.
125 If your nominal income rises faster than the price level,
. A. Your real income has fallen.
B. Your real income has risen.
C. You can buy fewer goods and services.
D. There must be deflation.
126 According to the text, which group of assets increased the most in percentage terms from 1991
. to 2001?
A. Housing.
B. Gold.
C. Stocks.
D. Bonds.
127 All of the following are detrimental macro consequences of inflation except
. A. Uncertainty.
B. Speculation.
C. Bracket creep.
D. COLAs.
128 Which of the following indexes tracks changes in the average prices paid by consumers?
. A. CPI.
B. PPI.
C. GDP deflator.
D. The market basket.
129 If your nominal income remains constant at $3,000 while the price of an important product in
. your budget, such as cell phone service, rises from $50 to $100, your real income has
A. Decreased by $50.
B. Decreased by $100.
C. Decreased by $150.
D. Remained constant.
130 The core inflation rate excludes

. A. Entertainment and packaging prices.
B. Food and energy prices.
C. Only energy prices for the airlines.
D. Import prices.
131 The most visible consequence of inflation is

. A. A rise in employment.
B. A rise in production.
C. A rise in the price level.
D. A change in government regulation.
132 Changes in relative prices may occur

. A. Only in periods of stable prices.
B. Only in periods of inflation or deflation.
C. In periods of stable prices or in periods of inflation or deflation.
D. In none of the other choices.
133 Inflation is an increase in the average level of prices of goods and services.
. True False
134 Relative price changes are a desirable and essential ingredient of the market mechanism.
. True False
135 When restaurant prices rise faster than prices of food at grocery stores, real income rises for
. people who visit restaurants relative to those who cook for themselves.
True False
136 If your real income rises but your nominal income falls, then you benefit from deflation.
. True False
137 Redistribution of wealth is a microeconomic effect of inflation.

. True False
138 Money illusion results from expectations based on real purchasing power rather than current
. nominal income.
True False
139 Uncertainty and speculation are microeconomic effects of inflation.

. True False
140 The undesirable effects of bracket creep can be eliminated by indexing marginal tax rates.
. True False
141 The CPI is a measure of changes in the average price of consumer goods and services.
. True False
142 The core inflation rate involves all price changes including food and energy.
. True False
143 If the average price level increases by 2 percent this year, price stability has been achieved.
. True False
144 In order to achieve price stability, inflation must be zero.

. True False
145 Demand-pull inflation is the result of excessive pressure on the demand side of the economy.
.
True False
146 Cost-push inflation can occur as the result of higher wage rates.
. True False
147 The real interest rate is the rate of inflation minus the nominal interest rate.
. True False
148 During a period of inflation, are all prices rising? Explain your answer.
.
149 Is everyone worse off because of inflation? Why or why not?

.
150 Why did the Full Employment and Balanced Growth Act establish 3 percent inflation as the
. benchmark rather than zero inflation?
151 What is the difference between demand-pull inflation and cost-push inflation?
.
152 Discuss two mechanisms that offer protection from the effects of inflation.
.
153 Based on the real interest rate, who tends to benefit from unanticipated inflation in terms of
. borrowing and lending?
Chapter 07 Test Bank Key
1. Inflation is
A. A rise in the price of every good but not any service.
B. An increase in relative prices of all goods and services.
C. A situation in which purchasing power increases.
D. An increase in the average level of prices of goods and services.
Inflation does not mean that all prices of goods and services are rising or there has been a
change in any specific price. Rather, it means the average price of all goods and services is
rising.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 07-01 How inflation is measured.
Topic: WHAT IS INFLATION?
2. Inflation rates above 10 percent occur
A. In most countries today.
B. Rarely in the United States.
C. During wartime periods.
In recent years inflation over 10 percent per year has been confined to only a handful
of countries such as Zimbabwe and Venezuela.
Blooms: Understand
Difficulty: 02 Medium
3. Inflation means
A. Specific prices are rising, and relative prices are falling.
B. Both relative prices and average prices are rising.
C. Relative prices are rising, but it is not certain what is happening to average prices.
D. Average prices are rising, but it is not certain what is happening to relative prices.
The relative price of a good or service can rise or fall depending on if it is rising faster than
inflation or slower than inflation.
Blooms: Remember
Difficulty: 01 Easy
4. A decrease in the average level of prices of goods and services is
A. Deflation.
B. Recession.
C. Depression.
D. Inflation.
Deflation does not mean that all prices are necessarily falling, but on average prices are
falling.
Blooms: Remember
Difficulty: 01 Easy
5. Deflation is a/an ____________ in the average level of prices of goods and services.
A. increase
B. decrease
C. stagnation
D. increase followed by a decrease
With deflation, even though the price level may be falling, some prices may be rising
or remaining constant.
Blooms: Remember
Difficulty: 01 Easy
6. When there is no deflation or inflation,
A. Prices of all goods change by the same percentage.
B. Relative prices remain unchanged.
C. Average prices do not change.
D. Full employment is achieved.
Some prices may rise or fall, but on average prices are constant.
Blooms: Remember
Difficulty: 01 Easy
7.
According to Figure 7.1 in Country A,
A. Relative prices may have been changing, but average prices were constant.
B. Relative prices were definitely constant.
C. Average prices and relative prices were definitely changing.
D. Average prices were constant, and unemployment was increasing.
As the textbook will later explain in great detail, many forces in both the private sector and
public sector affect the price level. In this case, the forces were balanced, and the price level
was stable.
AACSB: Analytic
Blooms: Analyze
Difficulty: 03 Hard
8.
According to Figure 7.1, which of the following statements was definitely true about Country
B?
A. Relative prices were changing.

B. The average price in general increased over the time period 1970 to 1995.
C. Real incomes were increasing.
D. The price level was about the same in 1970 and 1995.
When the percentage change in the CPI is positive each year, there may or may not
be changes in relative prices. But there must be increases in average prices.
AACSB: Analytic
Blooms: Analyze
Difficulty: 03 Hard
9.
During the time period represented in Figure 7.1, Country A
A. Experienced periods of both inflation and deflation.

B. Never achieved the inflation goal set by the Full Employment and Balanced Growth Act of 1978.
C. Had no need for COLAs.
D. Experienced only inflation.
COLA's describe automatic adjustments of nominal income in response to changes in
inflation. Since the CPI remained constant, the cost of living also remained constant;
therefore there was no need for COLAs.
AACSB: Analytic
Blooms: Analyze
Difficulty: 03 Hard
10.
In the year 1995, which of the following statements is true about the two countries
represented in Figure 7.2?
A. The countries had approximately the same rate of inflation.

B. The CPI was virtually equal in the two countries.
C. The market basket cost approximately the same in both countries.
D. Real incomes were rising at the same rate in both countries.
In the year 1995, the two countries'CPI increased by approximately 2 percent (where the
two curves intersect).
AACSB: Analytic
Blooms: Analyze
Difficulty: 03 Hard
11. Relative price is
A. The price of one good in comparison with the price of other goods.
B. A decrease in purchasing power because of rising prices.
C. The amount of income a particular good requires.
D. The current price paid for a good or service.
If the price of an apple is $1 and the price of a banana is $0.50, then the relative price of an
apple is two bananas.
Blooms: Remember
Difficulty: 01 Easy
12. Changes in relative prices may occur in a period of
A. Stable prices only.
B. Inflation only.
C. Deflation only.
D. Stable prices, inflation, or deflation.
Changes in relative prices have little to do with inflation and are influenced by things
like production costs and changes in relative demand for the goods.
Blooms: Understand
13. Changes in the relative prices of two goods indicate
A. Inflation.
B. Nominal price changes adjusted for the inflation in the price of the goods.
C. That average prices for the period must not be stable.
D. Changes in the desired mix of output.
The relative price of a good is the price in terms of other goods. If the price of a cola is $1
and the price of a pizza is $5, the relative price of a pizza in terms of colas is the price of
pizza divided by the price of colas. That is, one pizza costs five colas.
Blooms: Understand
14. Which of the following functions are performed by changes in relative prices but not by
changes in average prices?
A. Computing real income from nominal income.
B. Indicating an overheating economy.
C. Signaling changes in the desired mix of output.
D. Measuring the rates of inflation.
If the relative price of a good rises, this demand signals for producers to bring more of that
good to the market because they will be rewarded by a higher price.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
15. If the price of iPods rises 10 percent during a year when the level of average prices rises 3
percent, the relative price of iPods compared with other goods
B. Increases.
C. Decreases.
When the price of a good rises faster than the average price level or falls more slowly than
the average price level, it is increasing in relative price.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
16. If the price of Bluetooth headsets rises 12 percent during a year when the level of average
prices rises 13 percent, the relative price of Bluetooth headsets
B. Increases.
C. Decreases.
When the price of a good increases at a slower rate than the average price level, the
relative price of the good decreases.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
17. When the price of a good decreases more slowly than an index of average prices decreases,
the good's relative price
A. Has risen while its actual price has fallen.
B. And its actual price has risen.
C. And its actual price has fallen.
D. Has fallen while its actual price has risen.
If the price of a good rises more quickly than the average price level or falls more slowly than
the average price level, its relative price has increased.
Blooms: Understand
18. Comparing changes in relative prices is more useful than examining average prices in
A. Determining the redistribution of income.
B. Determining the inflation rate.
C. Deflating nominal income.
D. Determining if there is deflation.
Income will tend to be redistributed to those selling goods that have increased in relative
price.
Blooms: Understand
19. Which of the following explains why redistribution occurs during inflation?
A. Rising prices fail to signal desirable changes in the mix of output.
B. Because all prices do not change at the same rate, people buy different combinations of goods and
services and own different combinations of wealth.
C. Relative prices remain unchanged.
D. All loans are indexed to inflation.
For example, some forms of wealth, like stocks, have appreciated faster than other forms of
wealth such as silver.
Blooms: Understand
Learning Objective: 07-02 Why inflation is a socioeconomic problem.
Topic: REDISTRIBUTIVE EFFECTS OF INFLATION
20. Which of the following results from unexpected increases in the rate of inflation?
A. Decreased uncertainty.
B. Increased windfall profits to creditors who have lent large amounts of money.
C. Redistributions of income and wealth between different groups.
D. Creditors are made better off.
Unless all parties protect themselves from the effects of changes in the price level by using
COLAs, there will be redistribution of income.
Blooms: Understand
21. The redistributive mechanics of inflation include all of the following except
A. Price effects.
B. Income effects.
C. Wealth effects.
D. Output effects.
Redistribution occurs because different people buy and sell different goods and own
different assets.
Blooms: Remember
Difficulty: 01 Easy
22. All of the following are microeconomic consequences of inflation except
A. A price effect.
B. An income effect.
C. A wealth effect.
D. A profit effect.
Prices, incomes, and wealth change due to changes in inflation, while profit is based more
on the difference in revenue and cost, and there is no profit effect.
Blooms: Understand
23. Which of the following is not true about your nominal income?
A. It is the amount of money you receive during a given time period.
B. It is measured in current dollars.
C. It is not an accurate measure of purchasing power.
D. It is the same as your real income in times of high inflation.
Real income is a measure of the quantity of goods and services your dollars will buy, and
your nominal income is the amount of money you receive in a particular time period. During
period of high inflation, your nominal income might be an overstatement in relation to the
quantity of goods and services it is able to buy (real income).
Blooms: Understand
24. The amount of money income received in a given time period, measured in current dollars,
is
A. Nominal income.
B. Real income.
C. Relative income.
D. The Consumer Price Index.
Nominal income is based in today's dollars but is less helpful in determining the actual
amount of goods and services it can purchase.
Blooms: Remember
Difficulty: 01 Easy
25. The term "nominal income" refers to
A. Money income adjusted for any change in the price level.
B. Real purchasing power.
C. Real purchasing power deflated for rising prices.
D. Money income measured in current dollars.
Income received today in today's dollars, otherwise not adjusted for inflation, is nominal
income.
Blooms: Remember
Difficulty: 01 Easy
26. Real income is
A. Nominal income adjusted for inflation.
B. The amount of money income received in a given time period, measured in current dollars.
C. The use of nominal dollars to gauge changes in income.
Real income takes into account changes to the price level, so it is a much better guide to
how much your income will purchase in goods and services.
Blooms: Remember
Difficulty: 01 Easy
27. Income in constant prices is
A. Nominal income.
B. Real income.
C. Bracket creep.
D. Income effect.
It is easier to keep track of what your money will purchase when using real variables such as
real income.
Blooms: Remember
Difficulty: 01 Easy
28. Your real income is
A. The amount of money you receive during a given time period.
B. Measured in current dollars.
C. The purchasing power of the money you receive.
D. The same as your nominal income in times of high inflation.
Real income is a measure of how much your income will allow you to purchase in goods
and services.
Blooms: Understand
29. Inflation ________________ the purchasing power of money.
A. increases
B. decreases
C. does not affect
D. stabilizes
Since inflation increases the prices of goods and services on average, it reduces the amount of
goods and services abled to be purchased, thus reduces the purchasing power of money.
Blooms: Remember
Difficulty: 01 Easy
30. When the price of a product rises faster than the inflation rate,
A. Nominal incomes of the consumers of that product fall.
B. Users of that product have higher real incomes than people who do not consume the product.
C. Nominal incomes of the consumers of that product rise.
D. Real incomes of the consumers of that product fall.
The consumers of the products whose prices are rising faster than the inflation rate will not
buy as many goods and services as their purchasing power has decreased. This means that
the real income of these consumers will fall. In concurrence, the real income of the seller of
those products rises.
Blooms: Understand
31. If your rent increases from $1,000 to $1,100 over a period of one year and your income
rises from $6,000 to $7,000, your nominal income has
B. Increased, and your real income has increased.
You are actually earning more nominal income, and even after adjusting for changes in
prices, particularly rent, your real income will still be higher. Your income is increasing
roughly 17 percent while your rent is increasing only 10 percent.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
32. If the price of your cell phone service increases from $70 to $105 over a period of one year
and your income rises from $1,500 to $1,525, your nominal income has
A. Increased, and your real income has increased.
B. Increased, but your real income has decreased.
Prices, particularly cell phone service, are rising faster than incomes; so while nominal
income will be higher, real income will be lower. In this case, your income rose 1.67 percent
while the price of cell phone service increased 50 percent.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
33. If the cost of your gasoline purchases decrease from $150 per month to $80 over a period of
one year due to lower prices and your income decreases from $1,600 per month to $1,500
per month, your nominal income has
B. Decreased, but your real income has increased.
C. Increased, and your real income has increased.
Your nominal income has decreased (6.3 percent), but prices, particularly for gasoline,
have fallen faster (46.7 percent), leading you to have lower nominal income but higher real
income.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
34. If a bank has already lent money at fixed interest rates, then during a period of higher-than-
expected inflation, it experiences
A. Negative real income effects.
B. Hyperinflation.
C. Rising real interest rates.
D. Deflation.
The lender loses because the borrower repays the fixed-interest loan with dollars worth less
(in real terms) than the dollars borrowed.
Blooms: Understand
35. If deflation is 0.5 percent per year and you receive a 1 percent decrease in your salary, then
your
A. Real income falls, but your nominal income remains unchanged.
B. Real and nominal income both fall.
C. Real income remains unchanged, but your nominal income rises.
D. Real and nominal income both rise.
In this case, your nominal income has fallen faster than the price level has fallen, leading you
to have less real income as well.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
36. Which of the following groups is protected from a sudden increase in inflation?
A. Borrowers who have loans at fixed interest rates.
B. Fixed-income groups.
C. Workers who receive fixed wages under multiyear contracts.
D. People who rent their homes under short-term leases in comparison with those who own their homes.
When inflation increases, borrowers end up better off paying fixed-interest loans with
money that is worth less than what they borrowed.
Blooms: Understand
37. Which of the following is a microeconomic consequence of inflation?
A. Greater unemployment.
B. Greater real income.
C. The wealth effect.
People's allocation of wealth will have a huge impact on whether they are helped or harmed
by inflation because the value of different assets are affected differently from inflation.
Blooms: Remember
Difficulty: 01 Easy
38. Generally speaking, which of the following groups would tend to gain real income from the
wealth effects of inflation?
A. People with fixed income.
B. People who have savings accounts at fixed rates of interest.
C. People who own assets that are appreciating faster than the inflation rate.
D. People who hold all of their assets in the form of cash.
Some assets, like stocks, tend to appreciate faster than the price level, while money market
accounts typically appreciate at a slower rate than the price level.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
39. During a period of unanticipated inflation,
A. Debtors are better off and creditors are worse off.
B. Debtors and creditors are both better off because of lower real interest rates.
C. Individuals on fixed incomes are better off.
D. All individuals are worse off because of the level of uncertainty.
If neither party anticipates inflation, then borrowers win because they repay lenders with
money that is less valuable than what they borrowed.
AACSB: Analytic Accessibility:
Keyboard Navigation Blooms:
Apply Difficulty: 03 Hard

40.
According to Figure 7.3, prices and wages were rising, so
A. Sellers of output were better off than wage earners.

B. Everyone must have been worse off since the price level rose faster than incomes.
C. There were no redistributive effects of inflation.
D. The economy was experiencing stagflation.
Since prices were rising faster than wages, the sellers of final output were gaining at
the expense of the workers that made the product or service that was sold.
AACSB: Analytic
Blooms: Analyze
Difficulty: 03 Hard
41.
During the time period represented in Figure 7.3, the purchasing power of the average
worker
A. Increased because nominal wages increased.

B. Decreased because real income decreased.
C. Stay the same because COLAs reduced purchasing power.
D. Decreased because nominal income decreased.
The price level was actually rising faster than nominal wages over the same period, so real
income would be lower.
AACSB: Analytic
Blooms: Analyze
Difficulty: 03 Hard
42. Money illusion is the
A. Use of nominal dollars rather than real dollars to gauge income or wealth.
B. Movement of taxpayers into higher tax brackets as nominal income increases.
C. Focus on real dollars rather than nominal dollars to determine purchasing power.
D. Uncertainty that occurs because of inflation.
If your income doubles and the price level doubles leaving you with the same measure of
purchasing power, yet you feel better off, then you are experiencing money illusion
because you are no better off.
Blooms: Remember
Difficulty: 01 Easy
43. A friend tells you that his income has risen every year by 5 percent. At the same time, prices,
on average, have risen by 5 percent. Your friend claims he is better off. Your friend
A. Is experiencing money illusion.
B. Really is better off as he suggests.
C. Has experienced an increase in nominal and real income.
D. Has experienced an increase in real income only.
Since your friend is using only nominal income to determine if he's better off and his
real income is remaining constant, he is experiencing money illusion.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
44. When people make decisions on the basis of the face value of currency rather than the real
value, their decisions reflect
A. The price effect of inflation.
B. The income effect of inflation.
C. The wealth effect of inflation.
D. Money illusion.
We should measure our benefit in terms of real income because that tells us how much our
income purchases in goods and services.
Blooms: Understand
45. All of the following are macroeconomic effects of inflation except
A. Uncertainty.
B. Speculation.
C. Bracket creep.
D. Lower taxes.
Taxes will typically rise with inflation due to bracket creep unless the brackets are adjusted
for inflation.
Blooms: Understand
Topic: MACRO CONSEQUENCES
46. All of the following push a country inside its production possibilities curve except
A. A sudden burst of inflation that has not been anticipated.
B. A sudden burst of deflation that has not been anticipated.
C. The withholding of resources from the production process because of speculation.
D. An increase in labor force participation.
An increase in labor force participation would move from a point inside the
production possibilities curve to a point either on it or closer to the curve or shift the
production possibility curve.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
47. Which of the following is a macro consequence of a sudden increase in the average level of
prices?
A. People on fixed incomes suffer.
B. Uncertainty is greater.
C. Nominal income falls by a smaller percentage than real income.
D. People lengthen their time horizons.
It is more difficult to prepare demand or supply decisions in the years to come when
inflation is uncertain.
Blooms: Understand
48. Inflation affects production decisions because it
A. Decreases input costs.
B. Reduces speculation.
C. Causes businesses to focus more on the future.
D. Causes businesses to be more cautious since the future is uncertain.
A firm is speculative about potential revenue or costs for proceeding years when inflation
is high and relative costs and prices are unstable.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
49. The uncertainty that results from inflation causes changes in
A. Consumption, saving, and investment behavior.
B. Saving and investment behavior, but not consumption.
C. Consumption, but not saving and investment behavior.
D. Income, but not consumption.
Some individuals will purchase items they think will go up in value due to the inflation
consequently affecting savings. This speculation also causes producers to be wary
investing in new operation, drawing resources away from more productive resources.
Blooms: Understand
50. Hyperinflation is
A. An inflation rate in excess of 200 percent, lasting at least one year.
B. An inflation rate in excess of 20 percent, lasting at least one year.
C. A common problem in the United States.
D. The movement of taxpayers to higher tax brackets because of rising prices.
In such situations workers'wages cannot keep up with rising prices, leaving many worse off.
Blooms: Remember
Difficulty: 01 Easy
51. Which of the following is a likely macroeconomic consequence of inflation?
A. Focus on long-term planning.
B. Speculation.
C. Antitrust issues.
Individuals will buy and hold real assets and shy away from currency when they think the real
assets will go up in value with the rising price level.
Blooms: Understand
52. Speculation during periods of inflation can result in all of the following except
A. People buying resources for resale later, rather than using the resources for current production.
B. A movement inward from the production possibilities curve.
C. People buying gold, silver, jewelry, and the like instead of capital for production.
D. More resources going into the production process.
In fact, resources are actually diverted away from productive uses when
individuals speculate.
Blooms: Understand
53. The movement of taxpayers into higher tax brackets as nominal incomes grow is
A. Bracket leap.
B. Bracket hike.
C. Bracket creep.
D. Inflation hike.
Unless the tax brackets are adjusted for inflation, bracket creep will impact many taxpayers
whose real income has not increased. If percentage increases of wages are equal to percentage
increases in prices, then the before-tax real income will be unchanged. However, with inflation
moving the worker into a higher tax bracket, the after-tax real income will fall.
Blooms: Remember
Difficulty: 01 Easy
54. Last year you earned $20,000 and paid taxes in the second tax bracket at 15 percent. This
year you earned $25,000, the extra $5,000 just compensating you for inflation. However, this
year you paid taxes in the third bracket at 20 percent. This illustrates the concept of
A. Stagflation.
B. Speculation.
C. Deflation.
D. Bracket creep.
Individuals may end up paying more than they would otherwise in taxes since their real
income has not increased and the tax brackets are not indexed for inflation. If percentage
increases in wages are equal to percentage increases in prices, then the before-tax real
income will be unchanged. However, with inflation moving the worker into a higher tax
bracket, the after-tax real income will fall.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
A. The price level rises.
B. People on fixed incomes are better off.
C. People who hold cash are worse off.
D. Lenders are worse off.
Since price levels fall during deflationary periods, if your nominal income remains
constant, your real income rises and in consequence your purchasing power increases.
Blooms: Understand
56. If the price level is falling, all of the following are true except
A. Lenders are better off.
B. Businesses are reluctant to borrow money.
C. Purchasing power increases.
D. Borrowers are not affected.
Borrowers are affected in that the debts they must repay on fixed-interest loans are
paid back with dollars worth more than what they borrowed.
Blooms: Understand
A. Time horizons are longer.
B. Consumer confidence increases.
C. Lenders are better off.
D. Borrowers are better off.
Lenders gain during deflationary periods because they are repaid in dollars worth more than
the ones they lent out on fixed-interest loans.
Blooms: Understand
58. The Consumer Price Index is
A. A measure of changes in the average price of all goods and services.
B. A measure of changes in the average price of consumer goods and services.
C. Used to measure the impact of business speculation on consumers.
D. The impact felt by consumers who move into a higher tax bracket because of inflation.
The CPI takes into account the weight and importance of items purchased by consumers
and uses these data as a measure of inflation.
Blooms: Remember
Difficulty: 01 Easy
Topic: MEASURING INFLATION
59. Which of the following measures changes in the average price of consumer goods and
services?
A. Inflation rate.
B. CPI.
C. Deflation rate.
D. Market basket.
There are many ways to track inflation; the CPI is one of the most widely used indexes.
Blooms: Remember
Difficulty: 01 Easy
60. To construct the Consumer Price Index, the Bureau of Labor Statistics must
A. Find out what people buy with their incomes and how the prices of what they buy change.
B. Find out why people buy, what they buy, and how the prices of what they buy change.
C. Find out what is in the typical consumer market basket on the basis of what producers produce.
D. Conduct producer surveys to determine how much prices rise.
The BLS conducts extensive research into what people are buying and updates the market
basket to reflect changes in purchase patterns.
Blooms: Understand
61. To compute the real income of a household, the index that should be used is the
A. Producer Price Index (PPI).
B. Consumer Price Index (CPI).
C. GDP deflator.
D. Cost of Living Adjustment (COLA).
The CPI is one of several consumer indexes used as a measure of the household purchases
of goods and services.
Blooms: Understand
62. The inflation rate is the
A. Monthly percentage rate increase in the price of all goods and services.
B. Annual percentage rate increase in tax brackets.
C. Annual percentage rate increase in the average price level.
D. Monthly adjustment of wages to the cost of living.
The percentage increase in the average price level from year to year is known as inflation.
Blooms: Remember
Difficulty: 01 Easy
63. A sudden increase in inflation, ceteris paribus,
A. Raises the real income of lenders relative to borrowers.
B. Raises the CPI and reduces real income.
C. Reduces the nominal income of those who have constant real incomes.
D. Makes everyone worse off.
Real income falls because an increase in the price level holding nominal income constant
reduces purchasing power of money. It makes those people holding real assets better off
than those who are holding cash.
Blooms: Understand
64. Assume the CPI increases from 110 to 121, and Manny's nominal income increases from
$100,000 to $120,000 over the same period. Manny's real income has
A. Increased by approximately 12 percent.
B. Increased by approximately 9 percent.
C. Decreased by approximately 8 percent.
D. Remained the same.
Manny's real income was $90,909.09 (100,000/110 ×100) in year 1 and $99,173.55
(120,000/121 ×100) in year 2-approximately a 9 percent ((99,173 - 90,909)/90,909) increase.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
A. 15 percent.
B. 13.6 percent.
C. 1.13 percent.
D. 50 percent.
The percentage change in the price level from one year to the next is the difference
in the CPI divided by the value in the first year: {(125 - 110)/110} ×100 = 13.6.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
A. 13 percent.
B. 10 percent.
C. 25 percent.
D. 15 percent.
The percentage change in the price level from one year to the next is the difference in the
CPI divided by the value in the first year, in this case {(275 - 250) ÷ 250} x 100 = 10 percent.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
67. At the beginning of 2006 the CPI was 216.2. At the beginning of 2007, it was 225.1. What
was the rate of inflation in 2006?
A. 4.9 percent.
B. 4.1 percent.
C. 3.6 percent.
D. 8.9 percent.
CPI divided by the value in the first year-in this case {(225.1 - 216.2) ÷ 216.2} ×100 = 4.1
percent.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
68. At the beginning of 2000, the CPI was 159.3. At the beginning of 2001, it was 177.6. What
was the approximate rate of inflation in 2000?
A. 7.6 percent.
B. 18.3 percent.
C. 10.0 percent.
D. 11.5 percent.
CPI divided by the value in the first year. In this case, {(177.6 - 159.3) ÷ 159.3} ×100 = 11.5
percent.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
69. If the Consumer Price Index rose from 180.9 in 2005 to 418.5 in 2015, what is the total
percentage change in prices over this 10-year period?
A. 131.34 percent.
B. 18.5 percent.
C. 80.9 percent.
D. 127.21 percent.
CPI divided by the value in the first year. In this case, (418.5 - 180.9) ÷ 180.9 = 1.3134 or
131.34 percent. For further analysis, this does not measure the inflation rate, which is an
annual concept.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
70. If a price index changed from 150 in 2008 to 148.5 in 2009, while Jim Bob's nominal wage
fell from $25 to $24, then Jim Bob is
A. Better off like everyone else in the economy since prices are lower for consumers.
B. Neither better nor worse off since his real wage remained constant.
C. Better off since his nominal wage fell slower than the price level did.
D. Worse off since his nominal wage fell faster than the price level did.
Jim Bob experienced a 4 percent decline in his nominal wage while prices fell on average by
1 percent, causing his real wage to be lower.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
71. For the CPI, the market basket is expressed in terms of what the goods cost in
A. 1929.
B. 2000.
C. The base period.
D. The optimal period.
A base year is used as a frame of reference for the price level.
Blooms: Remember
Difficulty: 01 Easy
72. The base period is the
A. Time period used for comparative analysis.
B. Absence of significant changes in the average price level.
C. Time period when full employment is reached.
D. First year in which inflation figures were calculated.
A base year is used as a frame of reference for the price level, which will be equal to 100 in
the base year.
Blooms: Remember
Difficulty: 01 Easy
73. The base period used in computing a price index is
A. The year in which prices were at their lowest level.
B. The year in which prices were at their average level.
C. A fixed reference year from which meaningful comparisons can be made.
D. The earliest year for which data are available.
The base year should have a market basket of similar composition to the year of
comparison.
Blooms: Remember
Difficulty: 01 Easy
74. Item weight is the
A. Measure of how much consumers demand a particular item.
B. Percentage of the typical consumer's budget spent on a particular item.
C. Significance placed on a particular item by the wealthiest households.
D. Physical weight of a good or service.
The CPI weights each item in the market basket according to the percentage spent on it
in the typical consumer's budget.
Blooms: Remember
Difficulty: 01 Easy
75. The percentage of total expenditure spent on a specific product is called
A. Core inflation.
B. A market basket.
C. A budget.
D. The item weight.
Items like housing account for a larger weight than items like entertainment because we
spend a greater percentage of our income on housing than entertainment.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
76. The Producer Price Index (PPI) is the best index to measure average price changes faced
by
A. Consumers.
B. Producers.
C. Importers.
D. Labor unions negotiating COLAs.
The PPI measures changes to the prices of things purchased by businesses.
Blooms: Understand
77. If you were interested in charting prices of resources used by producers of energy, which of
the following would you use?
A. The Producer Price Index (PPI).
B. The Consumer Price Index (CPI).
D. The Cost of Living Adjustment (COLA).
Firms are better served by tracking the price level with the PPI, which keep tracks of
average prices received by producers.
Blooms: Understand
78. Which of the following is often watched closely as a clue to potential changes in consumer
prices in the future?
A. The CPI.
B. The PPI.
D. The COLAs.
When the PPI rises, it forecasts a rise in the CPI because some increases in cost
will be passed to consumers in the form of higher prices for final goods and services.
Blooms: Understand
79. The GDP deflator
A. Is the price index based on a fixed basket of goods and services for the government.
B. Is the best measure of inflation for consumers.
C. Reflects the price changes felt by producers but not consumers.
D. Is the broadest price index, covering all output.
The GDP deflator looks at everything produced within the borders of the United States
including all consumer goods, investment goods, and government services and so is a broad
measure of the price level.
Blooms: Remember
Difficulty: 01 Easy
80. The price index that refers to all final goods and services produced in a country is the
A. GDP deflator.
B. PPI.
C. CPI.
D. GDP inflator.
The GDP deflator is a broad measure of the price level, tracking prices of all items inside
GDP.
Blooms: Remember
Difficulty: 01 Easy
81. Which of the following is not true for the GDP deflator?
A. It is based on a fixed basket of goods and services.
B. It refers to all goods and services produced in GDP.
C. It typically reveals a lower inflation rate than the CPI.
D. It reflects both price changes and market responses.
The GDP deflator changes as the production of goods and services changes; in this respect
it is very up to date.
Blooms: Understand
82. At the beginning of 1989, the GDP deflator was 93.6. At the end of 2004, it was 189.2. What
was the total percentage change in prices over this 15-year period?
A. 98.9 percent.
B. 102.14 percent.
C. 59.6 percent.
D. 150.0 percent.
The percentage change in the GDP deflator is equal to the difference in the values
divided by the initial value. The percentage change in the price level from one year to the
next is the difference in the GDP deflator divided by the value in the first year. In this
case, (189.2 - 93.6) ÷ 93.6 = 1.0214 or 102.14 percent. For further analysis, this does not
measure the inflation rate, which is an annual concept.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
83. The best price index to use in calculating real GDP is
A. Any of the indexes because they all reflect price level changes.
B. The CPI.
C. The PPI.
D. The GDP deflator.
Since real GDP tracks the production of the entire economy, we want to use the broadest
measure, which is the GDP deflator, as the price level.
Blooms: Understand
84. Which of the following reflects changes in expenditure patterns as well as price changes?
A. The CPI.
B. The PPI.
D. The COLA.
Since the GDP deflator tracks changes in the prices of all final goods and services, it is up
to date on what is actually being purchased.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
85. Nominal GDP is the
A. Price index that refers to all goods and services included in GDP.
B. Value of final output produced using American-owned factors of production.
C. Value of final output produced, measured in current prices.
D. Value of final output produced, adjusted for changing prices.
Nominal GDP measures the production of the economy in the prices of the year in which
it was produced.
Blooms: Remember
Difficulty: 01 Easy
86. Real GDP is the
A. Value of final output produced, adjusted for changing prices.
B. Value of final output produced, measured in current prices.
C. Income earned by current factors of production.
D. GDP minus depreciation.
Real GDP is a better gauge of the economy's production because it adjusts for changes in
the price level (i.e., is measured in constant prices).
Blooms: Remember
Difficulty: 01 Easy
87. If nominal GDP is constant, then the GDP deflator varies inversely with
A. The unemployment rate.
B. Real GDP.
C. COLAs.
D. The CPI.
If the GDP deflator rises while nominal GDP is constant, real GDP must be lower;
this is due to the fact that prices are higher, so the actual production must be lower.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
88. If nominal GDP is $9,600 billion and the GDP deflator is 118.5, real GDP is
B. $10,852.7 billion.
Nominal GDP divided by the GDP deflator multiplied by 100 gives real GDP. = 9,600 billion/
118.5*100
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
A. 1.5 percent.
B. 2.2 percent.
C. 6.2 percent.
D. 4.1 percent.
The inflation rate is equal to the difference in the price index divided by the CPI in 2002.
=(153.8-151.6)/151.6*100
AACSB: Analytic
Blooms: Analyze
Difficulty: 03 Hard
was
A. 2.4 percent.
B. 2.9 percent.
C. 6.2 percent.
D. 4.1 percent.
The inflation rate is equal to the difference in the price index divided by the GDP deflator
in 2003.
AACSB: Analytic
Blooms: Analyze
Difficulty: 03 Hard
Real GDP can be calculated by dividing the nominal GDP by the GDP deflator and
then multiplying the result by 100. = 7431.6/109.1*100
Blooms: Understand
One can calculate real GDP by dividing the nominal GDP by the GDP deflator and
then multiplying the result by 100. = 7843.2/112.3*100
AACSB: Analytic
Blooms: Analyze
Difficulty: 03 Hard
A. 2.65 percent.
B. 2.58 percent.
C. 3.40 percent.
D. 2.02 percent.
The inflation rate can be calculated by taking the difference in the CPI values and dividing
the result by the value of the CPI in 2001. = (131.7-28.3)/128.3*100
AACSB: Analytic
Blooms: Analyze
Difficulty: 03 Hard
was
A. 1.62 percent.
B. 2.68 percent.
C. 4.91 percent.
The inflation rate using the GDP deflator is calculated by taking the difference in the GDP
deflator values and dividing the result by the value of the GDP deflator in 2002. = (126.3-
123)/123*100
AACSB: Analytic
Blooms: Analyze
Difficulty: 03 Hard
The real GDP can be determined by dividing the nominal GDP by the GDP deflator and then
multiplying the result by 100. = 6300/123*100
Blooms: Understand
Real GDP can be determined by dividing the nominal GDP by the GDP deflator and
then multiplying the result by 100. = 6800/126.3*100
AACSB: Analytic
Blooms: Analyze
Difficulty: 03 Hard
97. In the Full Employment and Balanced Growth Act of 1978, price stability means that
A. There is zero inflation each year.
B. Inflation is less than 5 percent per year.
C. The inflation rate is the same each year.
D. Inflation is less than 3 percent per year.
Price stability means low inflation, not necessarily 0 percent inflation.
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 07-03 The meaning of "price stability."
Topic: THE GOAL: PRICE STABILITY
98. If some specific prices fall, some relative prices rise, and average prices remain unchanged,
there has been a period of
A. Stable price levels.
B. Inflation.
C. Deflation.
D. Disinflation.
Relative prices may change like the waves on a lake, but price stability means that the
average price, like the average level of the lake, is unchanging.
Blooms: Remember
Difficulty: 01 Easy
99. In the Full Employment and Balanced Growth Act of 1978,
A. Congress set an inflation goal of no more than 3 percent.
B. The president set an inflation goal of 0 percent.
C. Alan Greenspan set an inflation goal of 0 percent.
D. An unemployment goal of 4 percent was set, but no inflation goal could be set.
Maintaining low inflation is an important macroeconomic goal.
Blooms: Understand
100. Price stability
A. Is defined as a 0 percent rate of inflation in the Full Employment and Balanced Growth Act of 1978.
B. Is targeted at a 3 percent rate of inflation by Alan Greenspan, the head of the Federal Reserve.
C. Has been officially set by Congress at 3 percent or less.
th
D. Has been achieved consistently in the 20 century in the United States.
It is important to maintain price stability so that price changes do not cause instability
and speculation.
Blooms: Remember
Difficulty: 01 Easy
101. An inflation goal set at a low rate but greater than zero allows all of the following except
A. The economy to achieve both full employment and price stability at the same time.
B. For errors because of new products.
C. For price increases caused by quality improvements.
D. The Fed to meet less often.
There is no particular relationship between the inflation rate and the number of times the Fed
needs to meet.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
102. If the CPI doesn't measure product quality improvements, the CPI tends to
A. Understate the inflation rate.
B. Overstate the inflation rate.
C. Understate economic growth.
D. Be artificially low.
If the CPI registers a price increase that is due to quality improvements, unfortunately
that is mistaken for inflation; but in fact consumers are paying more to get more.
Blooms: Remember
Difficulty: 01 Easy
103. Which one of the following statements about the United States is true?
A. Prior to World War II, the United States experienced periods of both deflation and inflation.
B. The United States has experienced inflation virtually every year since 1800.
C. Since World War II, the United States has experienced deflation.
D. Prior to World War II, the United States experienced deflation virtually every year; since World War II,
the United States has consistently experienced inflation.
Before World War II, the economy expanded and experienced inflation and contracted,
experiencing deflation with changes to the business cycle.
Blooms: Understand
Learning Objective: 07-04 The broad causes of inflation.
Topic: THE HISTORICAL RECORD
104. All of the following statements about inflation in the United States are correct except
A. Since the Great Depression, average prices have risen almost every year.
B. The inflation rate was 13.5 percent in 1980.
C. Prior to World War II, the United States experienced periods of both deflation and inflation.
D. Inflation was at its worst during the Great Depression.
During the Great Depression, de</i>flation was actually a significant concern.
Blooms: Understand
Topic: THE HISTORICAL RECORD
105. If consumers attempt to buy more goods than the economy can produce, the result is
A. Unemployment.
D. The wealth effect.
When excess demand causes the price level to rise, the result is demand-pull inflation
because it is the increase in demand that is causing prices to rise.
Blooms: Understand
Topic: CAUSES OF INFLATION
106. If the economy is producing at capacity and consumers are willing and able to buy more, this
may cause
A. Demand-pull inflation.
B. Cost-push inflation.
C. Supply-side inflation.
D. The price effect.
Excess demand that results in an increasing price level is known as demand-pull inflation.
Blooms: Understand
107. When natural disasters, such as hurricanes on the U.S. Gulf Coast or an earthquake
in Japan, disrupt supply chains and push up the costs of production, this may result in
A. Labor-push inflation.
C. Wage-pull inflation.
D. Cost-push inflation.
Inflation that results from higher production costs in known as cost-push inflation.
Blooms: Understand
108. When production costs increase and producers raise output prices, the result is
A. The price effect.
B. Unemployment.
C. Cost-push inflation. D.
Demand-pull inflation.
When inflation results from higher production costs, the economy is experiencing cost-push
inflation.
Blooms: Understand
109. If OPEC raises the price of oil and production costs increase, this may cause
A. Cost-push inflation.
C. Hyperinflation.
D. Super-pull inflation.
Cost-push inflation occurs when input costs rise, leading producers to raise prices to
maintain profitability.
Blooms: Understand
110. A COLA is
A. A mortgage that adjusts the nominal interest rate to changing rates of inflation.
B. A price index that refers to all goods and services included in GDP.
C. An automatic adjustment of nominal income to the rate of inflation.
D. An inflation rate of at least 200 percent, lasting more than one year.
To maintain constant real income, COLAs (cost-of-living adjustments) can be used to
keep nominal income rising at the same rate as the price level.
Blooms: Remember
Difficulty: 01 Easy
Topic: PROTECTIVE MECHANISMS
111. Cost-of-living adjustments
A. Reduce the price effect of inflation.
B. Allow individuals to maintain their purchasing power during inflation.
C. Cause individuals to shorten their time horizons.
D. Maintain constant real interest rates.
Real income can be maintained at a constant level if the nominal income is allowed to adjust
in step with the price level.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
112. A mortgage that adjusts the nominal interest rate to changing rates of inflation is
A. An ARM.
B. A PPI.
C. A GDM.
D. A COLA.
An ARM, or adjustable-rate mortgage, is designed to protect the lender from
unanticipated inflation.
Blooms: Remember
Difficulty: 01 Easy
113. When inflation suddenly increases, ARMs
A. Protect against rising real interest rates.
B. Protect the purchasing power of workers'wages.
C. Protect borrowers against the effects of inflation.
D. Maintain a stable real interest rate.
The real interest rate can be held constant if the nominal interest rate adjusts with changes in
the inflation rate.
Blooms: Remember
Difficulty: 01 Easy
114. The real interest rate is
A. The difference between the prime rate and the rate charged by the government (the Federal Reserve)
on loans.
B. The nominal interest rate minus the anticipated rate of inflation.
C. The inflation rate minus the percentage increase in average wages.
D. The sum of inflation rates and unemployment rates.
The real rate of interest is the return to the lender after adjusting for inflation.
Blooms: Remember
Difficulty: 01 Easy
115. All of the following are true of the real interest rate except it
A. Is equal to the nominal interest rate minus the anticipated rate of inflation.
B. Is stabilized by ARMs.
C. Is the inflation-adjusted rate of interest.
D. Equals the foreign exchange rate minus the inflation rate.
The real interest rate equals the nominal interest rate minus the rate of inflation.
Blooms: Remember
Difficulty: 01 Easy
116. If the nominal interest rate is 13 percent and the anticipated rate of inflation is 8 percent,
the real interest rate is
A. 13 percent.
B. 21 percent.
C. 5 percent.
D. -5 percent.
The real interest rate, which measures the change in purchasing power, is determined by
subtracting the anticipated rate of inflation from the nominal interest rate.
AACSB: Analytic
Blooms: Analyze
Difficulty: 03 Hard
117. If the nominal interest rate is 6 percent and the anticipated rate of inflation is 6 percent, the
real interest rate is
A. 6 percent.
B. 12 percent.
C. 3 percent.
D. 0 percent.
The real interest rate is equal to the nominal interest rate minus the anticipated rate of
inflation.
AACSB: Analytic
Blooms: Analyze
Difficulty: 03 Hard
118. If the nominal interest rate is 10 percent and the real interest rate is 6 percent,
A. The expected rate of inflation is 4 percent.
B. The expected rate of inflation is 6 percent.
C. Real GDP must exceed nominal GDP.
D. Nominal GDP equals real GDP.
The expected rate of inflation is equal to the nominal real rate of interest minus the real
rate of interest.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
119.
Using Figure 7.4, expected inflation was
A. Greater during the period from 1970 to 1975 than it was during the period from 1980 to 1985.
B. The same in 1970 and 1995.
C. Greater in 1970 than in 1995.
D. Greater during the period from 1980 to 1985 than it was during the period from 1970 to 1975.
Because the gap between the nominal interest rate and the real interest rate was larger in
the 1980 to 1985 period, there was a higher expected inflation rate.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
120.
For the economy represented in Figure 7.4, which of the following statements is definitely
true?
A. Anticipated inflation was greater than actual inflation.

B. Actual inflation was greater than anticipated inflation.
C. Inflation was anticipated.
D. Inflation occurred.
There must have been inflation because every year the nominal rate of interest was higher
than the real rate of interest.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
121.
Consider the economy represented in Figure 7.4. If actual inflation was greater than
anticipated inflation,
A. Borrowers would experience a decrease in real income.

B. Lenders would experience a decrease in real income.
C. Lenders would experience an increase in real income.
D. The Federal Reserve would be forced to step in to increase lending.
Lenders would be worse off because borrowers would repay their loans with dollars worth
less than what they borrowed.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
122. The most fundamental function of prices in a market economy is to provide
A. The data necessary to calculate rates of inflation.
B. The basis for the calculation of sales tax.
C. Information about the relative scarcities of resources and goods and services.
D. Maximum profits to producers.
Inflation actually distorts this important role of prices.
Blooms: Understand
123. The most desirable inflation rate is the rate that
A. Equals the official goal of 3 percent.
B. Has the least effect on the behavior of companies, investors, consumers, and workers.
C. Maximizes the "wealth effect" of inflation.
D. Coincides with an unemployment rate of 0 percent.
As long as inflation is low and stable, individuals can easily factor it into their expectations.
Blooms: Understand
124. The amount of money income received in a given time period, measured in current dollars,
is
A. Nominal income.
B. Fixed income.
C. Real income.
D. Asset income.
Nominal income is not adjusted to any changes in the price level.
Blooms: Understand
125. If your nominal income rises faster than the price level,
A. Your real income has fallen.
B. Your real income has risen.
C. You can buy fewer goods and services.
D. There must be deflation.
Real income can rise when nominal income is rising faster than the price level, or real
income can fall if nominal income is rising slower than the price level.
Blooms: Understand
126. According to the text, which group of assets increased the most in percentage terms from
1991 to 2001?
A. Housing.
B. Gold.
C. Stocks.
D. Bonds.
Inflation does not affect everyone equally; the way wealth is held has a big effect on whether
one wins or loses from inflation.
Blooms: Understand
127. All of the following are detrimental macro consequences of inflation except
A. Uncertainty.
B. Speculation.
C. Bracket creep.
D. COLAs.
COLAs are designed to protect workers and retirees against rising prices that would
erode their purchasing power.
Blooms: Understand
128. Which of the following indexes tracks changes in the average prices paid by consumers?
A. CPI.
B. PPI.
C. GDP deflator.
D. The market basket.
The Consumer Price Index (CPI) is used to track changes to the cost of the basket of goods
that the typical consumer purchases.
Blooms: Understand
129. If your nominal income remains constant at $3,000 while the price of an important product in
your budget, such as cell phone service, rises from $50 to $100, your real income has
A. Decreased by $50.
B. Decreased by $100.
C. Decreased by $150.
D. Remained constant.
Being forced to pay higher prices while income remains constant indicates that one's
purchasing power is falling.
Blooms: Understand
130. The core inflation rate excludes
A. Entertainment and packaging prices.
B. Food and energy prices.
C. Only energy prices for the airlines.
D. Import prices.
The core inflation rate excludes changes in food and energy prices, which have a lot of
month-to-month variation.
Blooms: Understand
131. The most visible consequence of inflation is
A. A rise in employment.
B. A rise in production.
C. A rise in the price level.
D. A change in government regulation.
People who buy products that are increasing in price the fastest end up worst off.
Blooms: Understand
132. Changes in relative prices may occur
A. Only in periods of stable prices.
B. Only in periods of inflation or deflation.
C. In periods of stable prices or in periods of inflation or deflation.
D. In none of the other choices.
Relative prices are always changing.
Blooms: Understand
133. Inflation is an increase in the average level of prices of goods and services.
TRUE
On average, prices rise by the inflation rate, but some may rise faster or slower than the
inflation rate.
Blooms: Remember
Difficulty: 01 Easy
134. Relative price changes are a desirable and essential ingredient of the market mechanism.
TRUE
Relative prices change when there is a change in relative scarcity.
Blooms: Understand
135. When restaurant prices rise faster than prices of food at grocery stores, real income rises for
people who visit restaurants relative to those who cook for themselves.
FALSE
The real income of those who visit restaurants actually falls because the relative price of
meals has increased.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
136. If your real income rises but your nominal income falls, then you benefit from deflation.
TRUE
In this case, the price level is falling faster than your nominal income is, so your real income
rises.
Blooms: Understand
137. Redistribution of wealth is a microeconomic effect of inflation.
TRUE
Assuming that buyers'nominal incomes remain constant, redistribution of wealth occurs
because buyers of goods will be worse off and sellers will be better off when prices rise.
Blooms: Understand
138. Money illusion results from expectations based on real purchasing power rather than current
nominal income.
FALSE
Money illusion is based on expectations of nominal income, not purchasing power.
Blooms: Understand
139. Uncertainty and speculation are microeconomic effects of inflation.
FALSE
Uncertainty and speculation are macroeconomic effects of inflation.
Blooms: Understand
140. The undesirable effects of bracket creep can be eliminated by indexing marginal tax rates.
TRUE
If incomes rise due to inflation, this will move some earners into a higher tax bracket unless
tax rates are indexed to the price level.
Blooms: Understand
141. The CPI is a measure of changes in the average price of consumer goods and services.
TRUE
The CPI is a price index that is designed to track the spending patterns of the typical
consumer.
Blooms: Remember
Difficulty: 01 Easy
142. The core inflation rate involves all price changes including food and energy.
FALSE
The core inflation rate excludes the prices of food and energy.
Blooms: Remember
Difficulty: 01 Easy
143. If the average price level increases by 2 percent this year, price stability has been achieved.
TRUE
Price stability as defined by the Full Employment and Balanced Growth Act of 1978 is an
inflation of 3 percent or less per year.
Blooms: Evaluate
144. In order to achieve price stability, inflation must be zero.
FALSE
As long as inflation is 3 percent or less, price stability has been achieved.
Blooms: Understand
145. Demand-pull inflation is the result of excessive pressure on the demand side of the
economy.
TRUE
When there is too much demand relative to supply in the overall economy, there will be
demand-pull inflation.
Blooms: Understand
146. Cost-push inflation can occur as the result of higher wage rates.
TRUE
Anything that causes costs to rise in production will lead to cost-push inflation.
Blooms: Understand
147. The real interest rate is the rate of inflation minus the nominal interest rate.
FALSE
The real interest rate is the nominal interest rate minus the anticipated rate of inflation.
Blooms: Understand
148. During a period of inflation, are all prices rising? Explain your answer.
No. Inflation is defined as an increase in the average level of prices. Inflation does not mean that all prices
are rising. Relative prices may stay the same, increase, or decrease during inflation.

Blooms: Understand
149. Is everyone worse off because of inflation? Why or why not?
No. During inflation some people are better off and some people are worse off. Inflation does not affect
everyone equally because people buy and sell different combinations of goods and assets. Inflation
redistributes income and wealth by altering relative prices.

Blooms: Understand
150. Why did the Full Employment and Balanced Growth Act establish 3 percent inflation as
the benchmark rather than zero inflation?
The goal was set at 3 percent because of unemployment concerns and to allow for quality changes. If the
inflation goal is set too low, the government might decrease spending to stay within the limits of the goal, and
this would cause unemployment to increase. In this case, some inflation is the cost to keep unemployment from
rising. In addition, over time the quality of goods improves and new products are introduced. The CPI measures
price changes but not product changes and thus may overstate inflation. The goal of 3 percent allows for these
changes.

Blooms: Understand
151. What is the difference between demand-pull inflation and cost-push inflation?
Demand-pull inflation occurs because of excessive pressure on the demand side of the economy. If consumers
want to buy more goods than the economy can produce, prices are bid up. During this process, total demand
in the economy increases, and there is inflation. Cost-push inflation occurs because of pressure on the supply
side. If production costs begin to rise, producers are likely to raise output prices in an effort to maintain profits.
As producers pass along their costs to consumers in the form of higher prices, this also causes inflation.

Blooms: Understand
152. Discuss two mechanisms that offer protection from the effects of inflation.
Cost-of-living adjustments (COLAs) are automatic adjustments of nominal income to the rate of inflation.
COLAs protect real incomes when prices are rising. Adjustable-rate mortgages (ARMs) protect creditors during
periods of inflation. ARMs adjust the nominal interest rate to changes in the rate of inflation. The goal is to
maintain a stable real interest rate.

Blooms: Understand
153. Based on the real interest rate, who tends to benefit from unanticipated inflation in terms of
borrowing and lending?
The real interest rate is the nominal interest rate minus the anticipated inflation rate. During periods of
unanticipated inflation, borrowers tend to benefit and lenders tend to lose. If the nominal interest rate is fixed,
the real interest rate tends to become very low or even negative as inflation increases. Borrowers enjoy
paying the low real interest rate, but lenders do not enjoy earning it.

Blooms: Understand
Chapter 07 Test Bank Summary
Category # of Questions
AACSB: Analytic 46
AACSB: Reflective Thinking 107
Accessibility: Keyboard Navigation 130
Blooms: Analyze 14
Blooms: Apply 32
Blooms: Evaluate 1
Blooms: Remember 39
Blooms: Understand 67
Difficulty: 01 Easy 39
Difficulty: 02 Medium 68
Difficulty: 03 Hard 46
Learning Objective: 07-01 How inflation is measured. 67
Learning Objective: 07-02 Why inflation is a socioeconomic problem. 50
Learning Objective: 07-03 The meaning of "price stability." 9
Learning Objective: 07-04 The broad causes of inflation. 27
Topic: CAUSES OF INFLATION 8
Topic: MACRO CONSEQUENCES 16
Topic: MEASURING INFLATION 43
Topic: PROTECTIVE MECHANISMS 15
Topic: REDISTRIBUTIVE EFFECTS OF INFLATION 36
Topic: THE GOAL: PRICE STABILITY 9
Topic: THE HISTORICAL RECORD 2
Topic: WHAT IS INFLATION? 22
Another random document with
no related content on Scribd:
admission to the Charterhouse School. This was the school where John
Wesley, Thackeray, Addison, and others were educated. He was admitted
as a pensioner, in June, 1621. Later, through Coke’s influence, he was
admitted to Pembroke College, Cambridge, in June, 1623. He was
graduated with the degree of bachelor of arts in 1627, and the year
following was admitted to holy orders. About this time he was disappointed
in a love affair, the lady of his choice being Jane Whalley. He sought
permission of her aunt, Lady Barrington, to marry her. When refused, he
wrote a striking letter in which he predicted for Lady Barrington a very
unhappy hereafter unless she repented.
Sir Edward Coke

Courtesy of “Providence Magazine”
In 1629, we find him at High Laves, Essex, not far from Chelmesford, where
Thomas Hooker, later the founder of Hartford Colony, was minister. Here he
also met John Cotton. Men’s views at that time were changing. The people
of the Established Church were divided into three classes. One stood by
the Established Order in all things; another class of Puritans sought to stay
by the Church, but aimed to purify the movement; the third class was for
absolute separation. Williams, with hundreds of others, was disturbed. The
anger of Lady Barrington and the suspicions of Archbishop Laud started a
persecution which drove him out of England. He said:
I was persecuted in and out of my father’s house. Truly it was as bitter as
death to me when Bishop Laud pursued me out of the land, and my
conscience was persuaded against the national church, and ceremonies and
bishops.... I say, it was as bitter as death to me when I rode Windsor way to
take ship at Bristol.
Many years later he wrote:
He (God) knows what gains and preferments I have refused in universities,
city, country, and court in old England, and something in New England, to
keep my soul undefiled in this point and not to act with a doubting
conscience.
Before leaving England, he was married. The only information we have in
regard to his wife, up to that time, is that her name was Mary Warned. They
sailed on the ship Lyon, from Bristol, England, December 1, 1630. After a
tempestuous journey of sixty-six days they arrived off Nantasket, February
5, 1631. Judge Durfee speaks thus of this flight:
He was obliged to fly or dissemble his convictions, and for him, as for all
noblest natures, a life of transparent truthfulness was alone an instinct and a
necessity. This absolute sincerity is the key to his character, as it was always
the mainspring of his conduct. It was this which led him to reject indignantly
the compromises with his conscience which from time to time were proposed
to him. It was this which impelled him when he discovered a truth to proclaim
it, when he detected an error to expose it, when he saw an evil, to try and
remedy it, and when he could do a good, even to his enemies, to do it.
Upon his arrival in Boston he was invited to become the teacher in the
Boston church, succeeding Mr. Wilson who was about to return to England.
To his surprise, he discovered that the Boston church was a church
unseparated from the Established Church of England, and he felt
conscientiously bound to decline their invitation. The Boston people, who
believed their church to be the “most glorious on earth,” were astonished at
his refusal. Williams would not act as their teacher unless they publicly
repented of their relation to the Established Order. It was perfectly natural
that a soul with convictions, such as Williams possessed, should desire to
be absolutely separated from the Established Order. One incident from
many will show the spirit of the Established Church in England toward those
within its ranks who had become Puritan, let alone Separatist. Neal, in his
“History of the Puritans,” tells, of Doctor Leighton’s persecution in England.
He was arrested by Archbishop Laud and the following sentence was
passed upon him: That he be
committed to the prison of the Fleet for life, and pay a fine of ten thousand
pounds; that the High Commission should degrade him from his ministry, and
that he should be brought to the pillory at Westminster, while the court was
sitting and be publicly whipped; after whipping be set upon the pillory a
convenient time, and have one of his ears cut off, one side of his nose split,
and be branded in the face with a double S. S. for a sower of sedition: that
then he should be carried back to prison, and after a few days be pilloryed a
second time in Cheapside, and have the other side of his nose split, and his
other ear cut off and then be shut up in close prison for the rest of his life.
In the district in which Roger Williams lived this sentence was carried out in
all its hellish cruelty just prior to Williams’ banishment from England. Do we
blame the exile Williams for repudiating the movement which at that hour
was so wicked in its persecutions? He meant to have a sea between him
and a thing so hateful. John Cotton said that Williams looked upon himself
as one who “had received a clearer illumination and apprehension of the
state of Christ’s kingdom, and of the purity of church communion, than all
Christendom besides.” Cotton Mather said that Williams had “a windmill in
his head.” Well for America that such a windmill was there and that he was
a prophet with clear visions of truth.
Charterhouse School
After refusing the Boston church, Roger Williams was invited by the Salem
church to be assistant to Mr. Skelton, their aged teacher. He accepted their
invitation and became Teacher, April 12, 1631. The General Court in Boston
remonstrated with the Salem church. The persecution of this court led
doubtless to his retirement from Salem at the close of that summer.
He left the Massachusetts Bay Colony and became assistant to Ralph
Smith, the pastor at Plymouth. The Plymouth people, being strict
Separatists, were more congenial company, since they had withdrawn from
the Established Order to form a church after the pattern of the Primitive
Church model. Williams remained in Plymouth for about two years.
Governor Bradford soon detected his advanced positions, relative to
separation of Church and State, but considered it “questionable judgment.”
He praised his qualities as a minister, writing thus of him:
His teaching, well approved, for þe benefit whereof I still bless God, and am
thankful to him, even for his sharpest admonitions and reproofs, so far as
they agreed with truth.
Governor Winthrop, with Mr. Wilson, teacher of the Boston church, visited
Plymouth at this time.
They were very kindly treated and feasted every day at several houses. On
the Lord’s Day, there was a sacrament which they did partake in; and, in the
afternoon, Mr. Roger Williams (according to their custom) propounded a
question, to which the Pastor, Mr. Smith, spoke briefly; then Mr. Williams
prophesied; and after the Governor of Plymouth spoke to the question. Then
the elder (Mr. William Brewster) desired the Governor of Massachusetts and
Mr. Wilson to speak to it, which they did. When this was ended, the deacon,
Mr. Fuller, put the congregation in mind of their duty of contribution;
whereupon the Governor and all the rest went down to the deacon’s seat,
and put into the box and then returned.
Williams came in contact with the Indians who visited Plymouth from time to
time, and gained the confidence of Massasoit, the father of the famous
Philip. He studied their language and cultivated their friendship. He writes in
one of his letters, “My soul’s desire was to do the natives good!” Near the
close of his life he referred to this early experience: “God was pleased to
give me a painful patient spirit, to lodge with them in their filthy smoke, to
gain their tongue.” Surely the Providence of God was thus preparing the
way for the founding of a new colony, to be made possible through these
very Indians who had implicit confidence in this man of God.
A Key into the
LANGUAGE
OF
AMERICA:
OR,
An help to the Language of the Natives
in that part of America, called
NEW-ENGLAND.
Together, with briefe Observations of the Customes,
Manners and Worships, &c. of the
aforesaid Natives, in Peace and Warre,
in Life and Death.
On all which are added Spirituall Observations,

Generall and Particular by the Authour, of
chiefe and speciall use (upon all occasions,) to
all the English Inhabiting those parts;
yet pleasant and profitable to
the view of all men:
BY ROGER WILLIAMS
of Providence in New-England.
LONDON,
Printed by Gregory Dexter, 1643.
Boston, 1632
From an old print
The Fort and Chapel on the Hill Where Roger Williams Preached
Used by permission of A. S. Burbank, Plymouth, Mass.
Williams was Pauline in his self-supporting ministry. He wrote: “At Plymouth

I spake on the Lord’s Day and week days and worked hard at my hoe for
my bread (and so afterward at Salem until I found them to be an
unseparated people).” His ministry made friends and foes. His foes feared
he would run the same course of Anabaptist behavior as did John Smith,
the Se-Baptist, at Amsterdam. Early in August his first child was born, and
was named Mary after her mother. Later in the same month, he became for
a second time the assistant to Mr. Skelton, at Salem. A number of choice
spirits, who had been attracted to his ministry, went with him. He requested
a letter of dismission from the Plymouth church to unite with the Salem
church. This was granted, but with a caution as to his advanced views. To
advocate the separation of Church and State placed a man at that time with
the “Anabaptists,” as this was considered their great distinctive doctrine.
He commenced his labors at Salem under this cloud and also with the
General Court in Boston very suspicious of his work. Already there was the
distant rumbling of a storm which would eventually drive him into exile.
The ministers of the Bay Colony, from the churches of Boston, Newtowne
(Cambridge), Watertown, Roxbury, Dorchester, Salem, and elsewhere,
were accustomed to meet for discussion and common interest. Roger
Williams feared that this might lead to a presbytery or superintendency, to
the prejudice of local church liberty. He loathed everything which might
make for intolerance.
In December, 1633, he forwarded to the governor and his assistants a
document which he had prepared at Plymouth, in which he disputed their
right to have the land by the king’s grant. Williams claimed, “they have no
title except they compounded with the natives.” He also accused King
James of telling a lie in claiming to be “the first Christian prince to discover
this new land.” This treatise had never been published or made public. Its
appearance now terrified the governor and the assistants, for at that very
time they were holding the possession to their colony on a charter originally
given for a different purpose. It had been granted in England to a trading
company, and its transfer was questionable. They feared the king might
withdraw it. This treatise of Williams would be considered treason by the
king. They met on December twenty-seventh and counseled with Williams.
Seeing the grave danger to the colony, he agreed to give evidence of
loyalty. Today we do not question the ethical correctness of the advanced
position held by Williams.
It was not long before this pioneer of soul-liberty raised a new question
concerning “the propriety of administering an oath, which is an act of
worship, to either the unwilling or the unregenerate.” Williams’ position was
peculiarly obnoxious to the magistrates who were then on the point of
testing the loyalty of the colonists by administering an oath of allegiance
which was to be, in reality, allegiance to the colony instead of to the king.
The Court was called to discuss the new objection to its policy. Mr. Cotton
informs us that the position was so well defended by Williams that “it
threatened the court with serious embarrassment.” The people supported
Williams’ position, and the court was compelled to desist. On the death of
Skelton, in August, 1634, the Salem church installed Roger Williams as
their teacher. This act gave great offense to the General Court in Boston.
Williams commenced anew his agitation against the right to own land by the
king’s patent. The Salem church and Williams were both cited to appear
before the General Court, July 18, 1635, to answer complaints made
against them.
The elders gave their opinion:
He who would obstinately maintain such opinions (whereby a church might
run into heresy, apostasy, or tyranny, and yet the civil Magistrates may not
intermeddle) ought to be removed, and that the other churches ought to
request the Magistrates so to do.
The church and the pastor were notified “to consider the matter until the
next General Court, and then to recant, or expect the court to take some
final action.” At this same court, the Salem people petitioned for a title to
some land at Marblehead Neck, which was theirs, as they believed, by a
just claim. The court refused even to consider this claim, “until there shall
be time to test more fully the quality of your allegiance to the power which
you desire should be interposed on your behalf.” Professor Knowles says:
Here is a candid avowal that justice was refused to Salem, on the question of
civil right, as a punishment for the conduct of church and pastor. A volume
could not more forcibly illustrate the danger of a connection between the civil
and ecclesiastical power.
Pembroke College
Reduced from Loggan’s print, taken about 1688
Teacher and people at Salem were indignant, and a letter was addressed to
the churches of the colony in protest against such injustice. The churches
were asked to admonish the magistrates and deputies within their
membership. These churches refused or neglected to do this. In some
cases the letters never came before the church. Williams then called on his
own church to withdraw communion with such churches. It declined to do
this, and he withdrew from the Salem church, preaching his last sermon,
August 19, 1635. Here was a repetition of the first conflict. Straus writes:
Here stood the one church already condemned, with sentence suspended
over it. Against it were arrayed the aggregate power of the colony—its nine
churches, the priests, and the magistrates. What could the Salem church and
community do, threatened with disfranchisement, its deputies excluded from
the General Court, and its petition for land to which it was entitled, denied?
Dragooned into submission it had to abandon its persecuted minister to
struggle alone against the united power of Church and State. To deny
Williams the merit of devotion to a principle in this contest, wherein there was
no alternative but retraction or banishment, is to belie history in order to
justify bigotry, and to convert martyrdom into wrong-headed obstinacy. This is
exactly what Cotton sought to do in his version of the controversy given ten
years later in order to vindicate himself and his church brethren from the
stigma of their acts in the eyes of a more enlightened public opinion in
England. Williams pursued no half-hearted or half-way measures. He stood
unshaken upon the firm ground of his convictions, and declared to the Salem
church that he could no longer commune with them, thereby entirely
separating himself from them and them from him.
He went so far as to refuse to commune with his own wife in the new
communion which he formed in his own home, until she would completely
withdraw from the Salem church.
The time for the next General Court drew near. The Salem church letter and
Williams’ withdrawal from his church made his foes determined to crush
him. They had thoughts of putting him to death.
1635. Whereas Mr. Roger Williams, one of the elders of the church of
3rd Sept.Salem, hath broached and divulged dyvers newe and dangerous
opinions against the aucthorite of magistrates, as also with others
of defamcon, both of the magistrates and churches here, and that before any
conviccon, and yet maintaineth the same without retraccon, it is therefore
ordered, that the said Mr. Williams shall depte out of this jurisdiccon within
sixe weekes nowe nexte ensueing, wch if hee neglect to pforme, it shall be
lawfull for the Gouv’r and two of the magistrates to send him to some place
out of this jurisdiccon, not to returne any more without licence from the Court.
Fac-simile from Original Records of the Order for the Banishment
of Roger Williams.
The General Court convened in the rude meeting-house of the church in

Newtowne (Cambridge), on the corner of Dunster and Mill Streets. Williams
maintained his positions. He was asked if he desired a month to reflect and
then come and argue the matter before them. He declined, choosing “to
dispute presently.” Thomas Hooker, minister at Newtowne, was appointed
to argue with him on the spot, to make him see his errors. Williams’
positions had a “rockie strength” and he was ready, “not only to be bound
and banished, but to die also in New England; as for the most holy truths of
God in Christ Jesus.” He would not recant. So the Court met the following
day, Friday, October 9, 1635, and passed the following sentence:
Whereas Mr. Roger Williams, one of the elders of the church of Salem, hath
broached and divulged dyvers newe and dangerous opinions against the
aucthorite of magistrates, as also with letters of defamcon, both of the
magistrates and churches here, and that before any conviccon, and yet
maintaineth the same without retraccon, it is therefore ordered, that the said
Mr. Williams shall depte out of this jurisdiccon within sixe weekes nowe nexte
ensueing, wch if hee neglect to pforme, it shall be lawfull for the Gouv’r and
two of the magistrates to send him to some place out of this jurisdiccon, not
to returne any more without licence from the Court.
Original Church at Salem, Mass.
Site of Home of Roger Williams in Providence, R. I.
Although Williams had withdrawn from the church at Salem, yet his
character was such that the town was indignant at this decree of the court.
About this time, his second child was born. Like the prophets of old, he
gave the child a significant name, calling her “Freeborn.” Mr. Williams’
health at this time was far from being robust. A stay of sentence was
therefore granted, and he was to be allowed to remain until the following
spring. He did not refrain from advocating his opinions, and soon the
authorities heard of meetings in his house at Salem and of twenty who were
prepared to go with him to found a new colony at the head of the
Narragansett Bay. At its January meeting, the Court decided to send him to
England at once in a ship then about to return. He was cited to appear in
Boston, but reported inability due to his impaired health. They then sent a
pinnace for him by sea. Being forewarned, he fled to the wilderness in the
depths of which, for fourteen weeks, he suffered the hardships of a New
England winter.
* * * * * *
The original Roger Williams Church is still preserved at Salem. The first
church in the first town of the Massachusetts Bay Colony was at the corner
of Washington and Essex Streets. There is a brick structure there now and
a marble tablet marks it as the site of the first church in the Massachusetts
Bay Colony. On another tablet, is the inscription:
The frame of the first Meeting House in which the civil affairs of the Colony
were transacted, is preserved and now stands in the rear of Plummer Hall.
Plummer Hall is on Essex Street not very far from the First Church. In the
rear is the Roger Williams Church, a small building, measuring twenty feet
long by seventeen wide by twelve high at its posts. Originally it had a
gallery over the door at the entrance and a minister’s seat in the opposite
corner. On the wall opposite to the entrance is a list of its succession of
pastors and the years of their service:
Francis Higginson 1629-1630
Samuel Skelton 1629-1634
Roger Williams 1631-1635
Hugh Peters 1636-1641 etc., etc.
It could accommodate about one hundred people. There were only forty
families in Salem in 1632. There were only six houses, besides that of
Governor Endicott, when Higginson arrived in 1629. Here in this ancient
meeting-house Roger Williams preached those truths which led to his
banishment. From its pulpit came, clearly stated, the ideals that millions
have since accepted. The glory of the Sistine Chapel in Rome, or the Royal
Sancte Chapella, of Paris, can never equal the glory of this crude edifice,
the cradle of religious liberty in the New World.
The Roger Williams Home at Salem is still preserved. It is better known as
“the Witch House” because it was occupied by Judge Carwin, one of the
judges connected with the tragedy of 1692. It stands at the western corner
of Essex and North Streets. It was built by the founder of Rhode Island and
was at that time second only to the Governor’s home. Though it has been
altered and repaired, the original rooms in this building are as follows: The
eastern room on the first floor, 18 × 21½, and the room directly over it, 20 ×
21½; the western room on the first floor, 16½ × 18, and the room over it,
16½ × 20. The chimney is 8 × 12. The part of the house which retains its
original appearance is the projecting corner of the western part, fronting on
Essex Street. Roger Williams mortgaged this house, “for supplies,” to
establish the colony at Providence.
Mr. Upham, in his report to the Essex Institution, says of this wonderful
house:
Here, within these very walls, lived, two hundred and fifty years ago, that
remarkable and truly heroic man, who, in his devotion to the principle of free
conscience, and liberty of belief, untrammeled by civil power, penetrated in
midwinter in the depths of an unknown wilderness to seek a new home, a
home which he could find only among savages, whose respect for the
benevolence and truthfulness of his character made them, then and ever
afterward, his constant friends. From this spacious and pleasant mansion, he
fled through the deep snows of a New England forest, leaving his wife and
young children to the care of Providence, whose silent “voice” through the
conscience, was his only support and guide. The State which he founded
may ever look back with a just pride upon the history of Roger Williams.
II
THE FOUNDING OF PROVIDENCE
A community on the unheard-of principles of absolute religious liberty
combined with perfect civil democracy.—Professor Mason.
Thus for the first time in history a form of government was adopted which
drew a clear and unmistakable line between the temporal and the spiritual
power, and a community came into being which was an anomaly among the
nations.—Prof. J. L. Diman.
No one principle of political or social or religious policy lies nearer the base of
American institutions and has done more to shape our career than this
principle inherited from Rhode Island, and it may be asserted that the future
of America was in a large measure determined by that General Court which
summoned Roger Williams to answer for “divers new and dangerous
opinions,” and his banishment became a pivotal act in universal history.—
Prof. Alonzo Williams.
In summing up the history of the struggle for religious liberty it may be said
that papal bulls and Protestant creeds have favored tyranny. Theologians of
the sixteenth century and philosophers of the seventeenth, Descartes,
Spinoza, and Hobbes, favored the State churches. It was bitter experience of
persecution that led jurists, and statesmen of Holland and France, in face of
the opposition of theologians and philosophers, to enforce the toleration of
dissent. While there was toleration in Holland and France, there was, for the
first time, in the history of the world in any commonwealth, liberty and
equality and separation of Church and State in Rhode Island.—W. W. Evarts,
in “The Long Road to Freedom of Worship.”
In the code of laws established by them, we read for the first time since
Christianity ascended the throne of the Cæsars, the declaration that
conscience should be free and men should not be punished for worshiping
God in the way they were persuaded he requires.—Judge Story.
R
OGER WILLIAMS left Salem on or about January 15, 1636, making the
journey alone through the forests. With a pocket compass, and a sun-
dial to tell the hours, he set out, probably taking the road to Boston for
some distance. Nearing Boston, presumably at Saugus, he went west for a
while and then straight south until he reached the home of Massasoit, the
Wampanoag sachem, at Mount Hope, near Bristol. The ground was
covered with snow, and he must have suffered sorely on this journey of
eighty or ninety miles. Thirty-five years later in a letter to Major Mason, he
refers to this experience:
First, when I was unkindly and unchristianly, as I believe, driven from my
house and land, and wife and children (in the midst of a New England winter,
now about thirty-five years past), at Salem, that ever-honored Governor, Mr.
Winthrop, privately wrote me to steer my course to Narragansett Bay and the
Indians, for many high and public ends, encouraging me, from the freeness
of the place from any English claims or patents. I took his prudent notion as a
hint and voice from God, and waving all other thoughts and notions, I steered
my course from Salem (though in winter snow, which I feel yet) unto those
parts wherein I may say “Peniel”; that is, I have seen the face of God.
He also wrote: “I was sorely tossed for one fourteen weeks, in a bitter
winter season, not knowing what bread or bed did mean!” In his old age he
exclaimed, “I bear to this day in my body the effects of that winter’s
exposure.” In one of his books he refers to “hardships of sea and land in a
banished condition.”
The precious relics of this flight are the sun-dial and compass, now in the
possession of the Rhode Island Historical Society.
Williams finally reached Seekonk Cove, about the twenty-third of April. The
spot was at Manton’s Neck, near the cove, where there was a good spring
of water. Here he was joined by four companions, his wife, and two
children. “I gave leave to William Harris, then poor and destitute,” said
Williams, “to come along in my company. I consented to John Smith, miller
at Dorchester (banished also), to go with me, and, at John Smith’s desire,
to a poor young fellow, Francis Wickes, as also a lad of Richard
Waterman’s.” The latter was doubtless Thomas Angell. Joshua Verein came
later. Some historians think that others joined them at the Seekonk before
they were compelled to leave. Here they remained for two months. After
providing rude shelters and sowing seeds, they received a warning to move
on. “I received a letter,” said Williams,
from my ancient friend, Mr. Winslow, the Governor of Plymouth, professing
his own and others’ love for me, yet lovingly advising me, since I was fallen
into the edge of their bounds, and they were loathe to displease the Bay, to
remove to the other side of the water, and there, he said, I had the country
free before me, and might be free as themselves, and we should be loving
neighbors together.
Sun-dial and Compass Used by Roger Williams in His Flight
His removal cost him the “loss of a harvest that year.” Historians are agreed
that about the end of June he left Seekonk. The two hundred and fiftieth
anniversary was celebrated, June 23 and 24, 1886. Embarking in a crude
Indian canoe, Williams and his companions, six in all, crossed over the river
to a little cove on the west side, where they were halted by a party of
Indians, with the friendly interrogation, “What cheer?” Here the party landed
on a rock which has been known ever since as “What Cheer Rock.” The
cove is now filled and the rock covered from sight. A suitable monument
has been erected over the rock. It is in an open park space at the corner of
Roger and Williams Streets, Providence. A piece of this rock is preserved at
the First Baptist Church of Providence, and another has recently been
placed in cross form in the lobby floor of the new Central Baptist Church of
the same city. It is hoped that a piece of this rock will be worked into the
National Baptist Memorial in our country’s capital.
Spring at the Seekonk Settlement Tablet Marking Seekonk Site
What Cheer Rock. Landing-place of Roger Williams

After friendly salutations with the Indians, they reembarked and made their
way down the river around the headland of Tockwotten and past Indian and
Fox points, where they reached the mouth of the Moshassuck River.
Rowing up this beautiful stream, then bordered on either side with a dense
forest, they landed on the east side of the river, where there was an inviting
spring. Here, on the ascending slopes of the hill, they commenced a new
settlement, which Williams called “Providence,” in gratitude to God’s
merciful Providence to them in their distress. Later, when they spread out in
larger numbers and in all directions from this place, it was called
“Providence Plantations.” They prepared shelters for their families, probably
wigwams made of poles covered with hemlock boughs and forest leaves.

Macro Economy Today 14th Edition Schiller Test Bank instant download all chapter

Uploaded by

Copyright:

Available Formats

You might also like

Macro Economy Today 14th Edition Schiller Test Bank instant download all chapter

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Macro Economy Today 14th Edition Schiller Test Bank instant download all chapter

Uploaded by

Copyright:

Available Formats

Macro Economy Today 14th Edition

Schiller Test Bank

Macro Economy Today 14th Edition Schiller Solutions

Macro Economy Today 13th Edition Schiller Test Bank

Macro Economy Today 13th Edition Schiller Solutions

Economy Today 14th Edition Schiller Test Bank

Economy Today 14th Edition Schiller Solutions Manual

Macro Economy Today 14th Edition Hill Test Bank

Micro Economy Today 14th Edition Schiller Solutions

Economy Today 15th Edition Schiller Test Bank

2. Inflation rates above 10 percent occur

4. A decrease in the average level of prices of goods and services is

6. When there is no deflation or inflation,

According to Figure 7.1 in Country A,

A. Relative prices were changing.

During the time period represented in Figure 7.1, Country A

A. Experienced periods of both inflation and deflation.

A. The countries had approximately the same rate of inflation.

11. Relative price is

12. Changes in relative prices may occur in a period of

13. Changes in the relative prices of two goods indicate

22. All of the following are microeconomic consequences of inflation except

25. The term "nominal income" refers to

26. Real income is

27. Income in constant prices is

28. Your real income is

29. Inflation ________________ the purchasing power of money.

37. Which of the following is a microeconomic consequence of inflation?

39. During a period of unanticipated inflation,

According to Figure 7.3, prices and wages were rising, so

A. Sellers of output were better off than wage earners.

A. Increased because nominal wages increased.

42. Money illusion is the

48. Inflation affects production decisions because it

49. The uncertainty that results from inflation causes changes in

51. Which of the following is a likely macroeconomic consequence of inflation?

57. During a period of deflation,

58. The Consumer Price Index is

62. The inflation rate is the

63. A sudden increase in inflation, ceteris paribus,

72. The base period is the

73. The base period used in computing a price index is

74. Item weight is the

79. The GDP deflator

83. The best price index to use in calculating real GDP is

86. Real GDP is the

99. In the Full Employment and Balanced Growth Act of 1978,

100 Price stability

111 Cost-of-living adjustments

113 When inflation suddenly increases, ARMs

114 The real interest rate is

Using Figure 7.4, expected inflation was

A. Anticipated inflation was greater than actual inflation.

A. Borrowers would experience a decrease in real income.

122 The most fundamental function of prices in a market economy is to provide

123 The most desirable inflation rate is the rate that

130 The core inflation rate excludes

131 The most visible consequence of inflation is

132 Changes in relative prices may occur